IndustryIndustry Agenda Agenda FromCharting the Marginsthe Course: to theHow Mainstream Mainstream Investors can AssessmentDesign Visionary of the and Impact Pragmatic InvestmentImpact Investing Sector Strategiesand Opportunities to Engage Mainstream Investors A report by the World Economic Forum Investors Industries APrepared report by in the collaboration World Economic with DeloitteForum Investors Touche TohmatsuIndustries Prepared in collaboration with Deloitte Touche Tohmatsu September 2014 September 2013

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2 Charting the Course Contents Preface

3 Preface Impact investing has become a popular topic of discussion – not only with the mainstream media but also among mainstream investors. Yet while impact 4 Members of the investing has entered the mainstream mindset, it has not become part of the Steering Committee strategy, operations and business culture of mainstream investment institutions.

5 1. Executive Summary Impact investing – an investment approach intentionally seeking to create 5 1.1. Background of the both financial returns and positive social impact that is actively measured – Mainstreaming Impact has been lauded as an innovative investment strategy with the potential to Investing Initiative reconcile key structural shortcomings in traditional financial markets. Moreover, 5 1.2. Structure of This Report with exogenous trends such as population growth, rising inequality, climate change and resource scarcity gradually affecting investment markets, impact 6 1.3. Focus and Scope of Michael Drexler investing offers a progressive approach to mitigating risk. While impact investing This Report Senior Director, continues to gain momentum, the sector remains small in the context of global 7 2. Impact Investing in Head of Investors assets under management and faces systemic challenges – such as lack Theory and in Practice Industries of standardized metrics for social impact and the long investment horizons World Economic often needed to prove the model. Several players – including B-Lab, the GIIN, 7 2.1. Definitional Breadth Forum USA Omidyar Network, Toniic, Rockefeller Foundation, and the Social Impact and Opportunities for Investment Taskforce created by the G8 have been helping develop the sector Mainstream Participation infrastructure, advance the ecosystem and offer interfaces for engagement and 9 2.2. Impact Investing Within co-investment. the Context of Sustainable and Responsible Investing Over the past 3 years at the Davos Annual Meeting, the World Economic Forum 9 2.3. The “Impact Investing” has brought together mainstream investors, impact investors, policymakers and Label social entrepreneurs to discuss how to harness the potential of impact investing. In these interactive workshops, we explored how impact investing can create 10 3. The Economic Viability mutually beneficial financial, social and environmental impacts and discussed of Impact Investing the challenges and opportunities of impact investing at the sector-level and 10 3.1. Lessons from ESG institution-level. It is clear that mainstream investors’ have a strong enthusiasm to Integration create virtuous cycles of positive social impact that enable financial growth and strong economics. 11 3.2. Impact Investing Today Abigail Noble Associate Director, 12 3.3. The Case for Impact For most investors today, impact investing still needs to be translated from a Head of Impact Investing compelling concept into sound strategies – investment strategy, organizational Investing Initiatives strategy and ecosystem strategy. To address this need, this report introduces 14 4. Getting Started with World Economic a series of roadmaps – frameworks that can help an investor chart their course the Roadmap to Impact Forum USA in impact investing. Each investors’ motivations, operational contexts and goals Investing for impact investing are unique – there will be no standard template that fits 15 4.1. Breakdown of every investor. Mainstream Investors 16 4.2. Roadmap Step 1 – The goal of this report to is to help interested investors ask the right questions Vision and Leadership as they contemplate their path into impact investing. It is important to recognize 21 4.3. Roadmap Step 2 – that impact investing may not suit all investors. There will be institutions that Stages of Impact Investing conclude impact investing is not appropriate for them at this stage – while we Engagement are passionate about the potential of impact investing, we acknowledge the best future for the sector is where each investor makes informed choices according to 22 5. How to Proceed: their own best interest. Each investor and investment institution needs to evaluate Tactical Maps whether impact investing fits with its investment principles, future growth plans 23 5.1. Revisiting the and strategic constraints – and where it does fit, how it can chart its own course Breakdown of Mainstream in impact investing that is visionary, practical and competitively positioned over the Investors long run. 23 5.2. Roadmap Step 3 – With this in mind, the title analogy of “Charting the Course” is apt – like a nautical Investment Strategy Pillar map, this report offers an overview of the impact investing territory and allows 32 5.3. Roadmap Step 3 – its readers to chart their own course into impact investing. Like the captain of a Organisation Strategy Pillar ship, the reader will need to decide where the journey goes – especially given 38 5.4. Roadmap Step 3 – not all ships start from the same harbor nor should all take the same route or Ecosystem Strategy Pillar end up at the same port. Rather than prescribing a course, we aim to offer as many useful navigational aids and waypoints so investors interested in impact 45 6. Conclusion investing can become successfully engaged impact investors. 46 Endnotes 49 References and It is with that in mind that we humbly offer this report as an attempt to bring Further Reading the practice of impact investing to the next stage. We look forward to hearing about your journeys – please do share with us your experiences and feedback: 50 Acknowledgements [email protected].

Charting the Course 3 Members of the Steering Committee

The following six individuals served on the Steering Committee of the Mainstreaming Impact Investing Initiative and were instrumental in the creation of this report. We express our gratitude for their support.

Sergio P. Ermotti Group Chief Executive Officer, UBS AG James P. Gorman Chairman and Chief Executive Officer, Morgan Stanley Andrew E. Law Chairman and Chief Executive Officer, Caxton Associates Torben Möger Pedersen Chief Executive Officer, PensionDanmark Cecilia Reyes Chief Investment Officer, Zurich Insurance Group Peter Sands Group Chief Executive, Standard Chartered

Impact investments turn market failures into social and commercial opportunities, providing funds “for innovative projects while rewarding investors for the risks taken. For UBS and its clients it is therefore a symbiosis of both smart macro-investments and high social impact interventions and the new World Economic Forum report helps investors to understand risks and opportunities. – Sergio P. Ermotti ” We help clients pursue sustainability because it reflects our values and because we believe it plays “an increasingly important role in global finance. At Morgan Stanley, we are committed to sustainable investing and seek to mobilize the power of the capital markets to deliver positive impact at scale. Our firm can play a critical role in facilitating the flow of capital between investors and businesses to help foster sustainable growth and address the most pressing challenges facing society today. – James P. Gorman ” Impact Investing is set to see further substantial growth in the coming years. Not only will it “become more mainstream, but will also drive the essential deployment of substantial cash reserves held by charitable foundations where trustees have faced a dearth of both viable and ethical investment opportunities for too long. Having charitable fund assets create positive social change alongside actual ongoing charitable donations is a huge untapped resource. – Andrew” E. Law As a pension fund our overarching objective will always be to pursue the best risk-adjusted returns “for our beneficiaries. However, investments that have a positive social or environmental impact is an added benefit for both us an investor and society as a whole. It contributes to combating some of the global challenges we face by supporting sustainable growth and development. – Torben Möger” Pedersen What we’re looking for is intentionality, measurability and profitability. There are investment “opportunities out there to achieve this. Impact investing is not philanthropy or exotic niche investments. What it takes, though, is a commitment to make impact investing an integral part of the overall investment approach, executed in a structured and disciplined way. And it takes a culture and investment philosophy that value the impact created. ” – Cecilia Reyes The future of banking is intertwined with healthy economies. Mainstreaming impact investing will “promote inclusive growth, which is the foundation of sustainable economic development. Going beyond philanthropy, Standard Chartered has been banking social enterprises in our markets, enabling businesses to make a difference to people’s livelihoods. We are pleased the World Economic Forum has produced this study to further the industry’s understanding of this investment approach. ” – Peter Sands

4 Charting the Course 1. Executive Summary

In recent years, much has been written about impact investing – an investing model, managing issues of organizational change and if investing approach that intentionally seeks to create both financial desired, engaging with the robust and supportive impact investing return as well as positive social and/or environmental impact that ecosystem. is actively measured. Topics have included the attractiveness of impact investing as an investment approach, the growth in assets committed to impact investing and the potential for impact 1.2 Structure of this Report investing to create positive change. But given the range of impact investing approaches and investor types, there is still no predefined Recognizing that readers will have differing levels of familiarity with course that an interested “mainstream investor” can follow to the impact investing field, the report is divided into five sections begin making impact investments. This ambiguity stems not from and a conclusion. Sections 1, 2 and 3 introduce the report, insurmountable barriers to entry – indeed the population of impact contextualize impact investing within the broader universe of investors is growing – but rather from the maturing nature of the sustainable and responsible investing and provide readers with an impact investing approach. As the approach continues to develop, updated overview of impact investing. Sections 4 and 5 introduce there is a need for frameworks and options to help interested the Impact Investing Roadmap and detail the questions and investors. While this report does not contain the aforementioned recommendations referenced above. Readers familiar with impact “predefined course” to successful impact investing, it does suggest investing but short on time may choose to skip to these later a series of steps that can help mainstream investors ask the right sections. Specifically, the sections of this report are broken down questions, to define the right principles and practices and to draw as follows: on the right resources. By going through these steps, mainstream investors can chart their own course. Section 1 outlines the context in which this report has been written and specifies mainstream investors as the primary target audience with secondary audiences including intermediaries, self-identified 1.1 Background of the Mainstreaming Impact impact investors, academics and policy-makers. The section also Investing Initiative states that the content of this report is intended to help investors determine how to engage with impact investing and to ask the right This report is the sequel to “From the Margins to the Mainstream: questions along the journey. Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors”, which set out to provide a realistic Section 2 describes impact investing as a distinct approach assessment of the impact investing approach.1 Informed by over within the broader set of sustainable and responsible investing 150 mainstream investors, business executives, philanthropic approaches. Specifically, impact investing intentionally seeks leaders and policy-makers, that report provides an overview financial returns alongside social and/or environmental returns of impact investing activity, identifies factors constraining the that are actively measured. This section explores this distinction, acceleration of capital into impact investments and recommends a concluding that all approaches within the sustainable and set of actions that stakeholders can take to move impact investing responsible investing universe have merit and that experience from the margins to the mainstream. in any approach can serve as an “on-ramp” toward additional engagement with other approaches. Additionally, the section In the year since the publishing of “From the Margins to the provides brief examples of impact investments, showing that while Mainstream”, the impact investing field has continued to develop. many of the most widely-known impact investments involve the Throughout the past three years, the World Economic Forum has financing of socially-focused start-ups through private equity or convened mainstream and impact investors through interactive debt structures, there is a much broader array of impact investing workshops and analytical games hosted at the Annual Meeting in approaches across asset classes. Davos in 2012,2 2013,3 and 2014.4 The Forum’s Mainstreaming Impact Investing initiative has also strived to democratize the best Section 3 outlines the forces driving interest in impact investing. practices and lessons learned from active practitioners through its Since the set of impact investing approaches is still evolving, report series “Ideas to Practice, Pilots to Strategy”.5,6 comprehensive data on asset allocation, risks and returns does not yet exist. However, this section looks at growth in allocations This report explores a refreshed perspective on the long-term to responsible and sustainable investments in order to illustrate viability of impact investing and presents the “Impact Investing a growing trend among investors to incorporate non-financial Roadmap” – a framework that investors can use to clarify their considerations in portfolios. Additionally, it examines a set of global vision for impact investing, define stages of impact investing economic, demographic and environmental trends that are creating activities and identify tactical steps to develop an investment new market opportunities – opportunities that the impact investing strategy. Those tactical steps include designing an impact approach is poised to seize.

Charting the Course 5 Section 4 introduces the Impact Investing Roadmap. The first 1.3 Focus and Scope of this Report component of the roadmap involves defining the organization’s vision for impact investing. Recognizing that mainstream investors The roadmap and recommendation content contained in this report are a heterogeneous group, a series of questions are proposed segment “mainstream investors” into the following groups: that will help an organization clarify this vision based on its unique motivation, organizational context and market goals. The second component of the roadmap involves pursuing stages of impact Asset Owners, Financial Services Providers, investing activities. These stages range from evaluating feasibility, comprised of… comprised of… to performing sector due diligence, to launching pilot programmes, • Insurance companies • Liquid investment funds to institutionalising an impact investing strategy. Based on an • High net worth/family offices (mutual funds, hedge funds) organization’s specific and evolving circumstances, these different • Pension funds/endowments • Illiquid investment funds stages of engagement may be considered and sequenced over • Foundations (private equity, venture capital) time. • Diversified financial institutions/banks (note that these investors frequently act as both asset owners Section 5 continues from Section 4 to walk through the Impact and financial services providers) Investing Roadmap. The third component of the roadmap includes 12 tactical maps which detail specific approaches and This segmentation facilitates a meaningful analysis and the creation methodologies. These tactical maps are meant as reference guides of logical frameworks in which content and recommendations can for interested investors. They are structured around three strategic be targeted to specific investor types. It is recognized that this pillars (reflected below) and supported by examples from the field: segmentation is imperfect and that there is diversity even within • Investing Strategy: these groups. Offering complete roadmaps to suit every investor’s – Capital Sources unique circumstances – given the uniqueness of organizations’ – Investment Vehicles motivations, operational contexts and goals for impact investing – – Investment Sourcing would be beyond the scope of any written report. This report will – Impact help the interested investor ask the right questions and seek the • Organization Strategy: right assistance, and at times offer actionable strategies. Overall, – Structure the content of this report is meant to serve as a well-informed – Culture starting point for discussions internally within investment institutions – Talent and externally within the sector, not to provide custom-made – Technology answers. Consequentially, and by nature, each investor’s path into • Ecosystem Strategy: impact investing will be unique. – Networks – Partnerships It should also be noted that while this paper has not been – Academia specifically written for investors and intermediaries currently – Technical Assistance focused on making impact investments, it may be interesting for such parties as they seek to raise capital from mainstream investors or learn more about how other investors approach impact investing.

6 Charting the Course 2. Impact Investing in Theory and in Practice

2.1 Definitional Breadth and Opportunities for liquidity and anticipates generating financial returns in line Mainstream Participation with UK corporate bonds. The investment policy of the Fund is to maximize exposure to socially beneficial activities based 8 Impact investing, an investing approach that intentionally seeks on the Fund’s Social Assessment Methodology. to create both financial return as well as positive social and/ or environment impact that is actively measured, is frequently 2. Financing tax-advantaged community development/low income discussed but can sometimes seem complicated to conceptualize. housing projects (e.g. utilize government incentives such as Impact investing strategies target financial returns ranging from Low Income Housing Tax Credits (LIHTC) and New Market Tax capital preservation to market-competitive, and a spectrum of Credits (NMTC) in the US) social and environmental outcomes depending on sector, theory a. LIHTC programmes are prolific in the US. For example, of change, implementation strategy and targeted beneficiaries. in Michigan, the LIHTC programme is an investment Moreover, just as with any investment approach, the success of vehicle of US$ 20 million annually intended to increase and impact investors can vary depending on factors such as investing preserve affordable rental housing. The programme permits experience and track record. Additionally, impact investors may corporations, banking institutions and individual investors in face challenges due to real or perceived risks inherent to any affordable rental housing to claim a credit annually against innovative sector. their tax liability for a period of 10 years.9

Use of the term “impact investing” to refer to an investment 3. Addressing environmental/natural resource challenges (e.g. approach is a relatively recent development within sustainable and create pollution mitigation or environmental adaptation projects responsible investing. However, impact investing in the US arose that earn credits through government programmes) in the 1960s through such mechanisms as programme related a. Ecosystem Investment Partners could spend an estimated investments (PRIs) from foundations and Community Reinvestment US$ 30 million (out of US$ 181 million in raised capital) Act (CRA) investments from commercial banks and depository cleaning and restoring portions of 16,500 acres of Louisiana institutions. These days, much attention is paid to pioneering wetlands. The current phase of the restoration project impact investors who make direct, smaller-ticket investments in includes 508 acres which would generate 508 federal early-stage social enterprises through private equity and debt environmental restoration credits. These credits would then vehicles because there are many interesting and tangible case be sold to developers and government agencies which studies. While such case studies are compelling, the universe of require the credits to offset environmental damage caused impact investing is broader. The impact investing approach can be by their projects.10 applied across a range of asset classes and risk-adjusted return targets, in diverse and numerable ways; the following examples 4. Financing of renewable/clean energy installations and retrofits illustrate this notion: (e.g. green bonds issued by Development Financial Institutions (DFIs) or corporations) 1. Funding working capital loan funds for the benefit of for-profit or non-profit social enterprises a. In April 2014, the World Bank issued the first green bond in the Australian market at AUD 300 million. UniSuper, a. The California FreshWorks Fund is a public-private one of Australia’s largest not-for-profit superannuation partnership loan fund which finances grocery stores and funds, was the lead investor in the bond along with 14 fresh food retailers in underserved California communities. other institutions.11 The World Bank has issued US$ 6.4 From the Fund’s US$ 125 million loan pool, US$ 100 million billion equivalent in green bonds since 2008 through 68 was raised from banks and insurance companies and transactions and in 17 currencies, all of which support allocated to a senior debt tranche while US$ 25 million was eligible development programmes designed to address raised from a group of mission-driven investors and allocated climate change. The World Bank has a supervision process to a subordinated debt tranche. Additionally, US$ 7.5 million for these supported projects – client countries implement in grants has funded a first-loss reserve. Senior lenders the projects in accordance with project loan agreements are secured by collateral of the underlying loans from the and submit regular reports on project activities. A project’s FreshWorks Fund.7 progress, outcomes and impacts are monitored by the b. In December 2013, Threadneedle Investments and Big Issue World Bank and supervising government, and data is Invest in the UK launched a £ 15 million social investment collected to evaluate and measure the effectiveness of the partnership to create the first FCA-registered diversified project in achieving the stated impact goals.12 social bond fund in the UK market. The Fund offers daily

Charting the Course 7 b. In March 2014, Toyota issued the first green bond in the City School Districts in Utah in a pay-for-success bond automotive industry with a US$ 1.75 billion issuance of model with the goal of increasing school readiness and asset backed securities. The net proceeds will be used to academic performance among 3,500 three- and four-year- finance sales and leases of cars that meet predefined criteria olds, thereby reducing special education and remedial pertaining to powertrain, fuel efficiency and emissions. The services between kindergarten and 12th grade in those issue was led by Citi, with Bank of America Merrill Lynch, districts. J.B. Pritzker will provide a subordinate loan of Morgan Stanley, BNP Paribas, Credit Agricole, JP Morgan US$ 2.4 million to United Way of Salt Lake, reducing risk to and Mizuho acting as co-managers. These institutions Goldman Sachs if the preschool programme is ineffective.15 contributed to the creation of the “Green Bond Principles” which serve as voluntary guidelines that issuers disclose 6. Financing a for-profit company that generates a social or information important to investors, including the use and environmental benefit (e.g. social venture capital, private equity management of proceeds as well as the process for project & debt) evaluation and selection. The principles are intended to a. Bridges Ventures is a private sector, mission-driven promote the growth of the green bond market and enable investment company that specializes in funds that can deliver investors to evaluate the environmental impact of bonds. financial returns and make a positive social or environmental Initially Toyota’s green bond was set at US$ 1.25 billion, but impact. In late 2002, Bridges Ventures invested £ 125,000 was raised to US$ 1.75 billion due to over-subscription and of early-stage capital in Simply Switch, an online and 13 high demand. telephone-based provider of comparative information for c. In March 2014, Unilever issued a £ 250 million green bond utility suppliers. Follow-on investments resulted in a total (2% fixed rate coupon) to finance new factories which aim commitment of £ 345,000. Simply Switch was sold to to cut waste, water usage and greenhouse gas emissions The Daily Mail and General Trust for £ 22 million in 2006, of existing factories in half. The projects due to be financed returning £ 7.5 million to Bridges Ventures and resulting by the bond will be vetted by the Norwegian certification in a money multiplier of 22 times and an IRR of 165% to organization, DNV GL.14 investors. By being the first provider to offer its service both online and over the telephone, Simply Switch made it easier 5. Addressing failures of governments or free markets to provide for those without resources to go online to save money basic services or infrastructure to underserved populations on their bills. Additionally, it created 80 new jobs in in a through “pay for success” models (e.g. social impact bonds) Bridges Ventures target area and helped raise £ 500,000 for 16 a. Goldman Sachs invested US$ 4.6 million in United Way of charities. Salt Lake City for pre-school education in Granite and Park

8 Charting the Course 2.2 Impact Investing within the Context of 2.3 The “Impact Investing” Label Sustainable and Responsible Investing There are multiple perspectives at play in the dialogue around While the focus of this report is on impact investing, it is necessary bringing more mainstream capital to impact investing. One to acknowledge the ways in which investors incorporate impact perspective calls for broadening the definition of impact investing. into their decision-making, often expressed through sustainable Leaders of mainstream investing organizations often note that and responsible investing approaches. These approaches include: impact investing should be defined broadly enough to allow capital markets’ participants to embrace a range of opportunities. This • Exclusionary investment screens (both positive and negative). argument contends that when impact investing is too narrowly • Systematic and explicit integration of environmental, social defined, it risks reinforcing the perception that it is a niche activity, and governance (ESG) factors into traditional financial hindering its ability to scale. The second perspective advocates analysis. that a limited and precise definition will not hinder scale but rather • Impact investing which intentionally seeks to create both that it will actually drive adoption and advance development of the financial return as well as positive social and/or environment impact investing approach. A commonly cited hurdle to scaling impact that is actively measured. impact investing is a lack of robust data. A precise definition of impact investing will facilitate creation of more robust datasets One way to relate these approaches to one another is to consider which in turn will allow for creation of risk/return profiles, definition them progressively incorporating sustainable and responsible of benchmarks and standardisation of impact measurement. As investing themes in a more active fashion. For example, the reflected throughout this section, this report aligns more closely integration of ESG factors into investment decisions may implicitly with this second perspective. While recognizing that impact reflect a screening for particularly desirable/undesirable industries investing is closely related to other sustainable/responsible or geographies. Similarly, impact investments may implicitly investing approaches, it remains distinct in intentionality, approach reflect ESG factors in addition to the fact that impact investments and implementation. intentionally target social or environmental outcomes. It should be noted that an investor can utilize any one of these approaches The philosophical debate over the “impact investing” label and without explicitly engaging in the others. Figure 1 below provides a whether something qualifies as an impact investment is important simplified visualisation of how these approaches fit together. but should not prevent an interested investor from engaging. Indeed, we can examine investments not labelled “impact investments” made by investors not self-identified as “impact Figure 1: Sustainable and Responsible Investing Approaches investors” and find examples of impact investments according to Figure 1: Sustainable & Responsible Investing Approaches the definition described in this report. In such cases, investors may have engaged in processes to pursue an impact objective (possibly for the sake of impact or because a financial case follows from Exclusionary Screens that impact), identify investment opportunities and measure impact (Positive/Negative) – such processes reflect the core principles of impact investing, ESG Integration including intentionality. In short, formal labels and self-identification are not concrete delineators of what is “in” and what is “out” when it comes to impact investing. Organizations such as the European Increasing impact intent, measurement, and reporting Impact Investing Venture Philanthropy Association (EVPA), the Global Impact Investing Network (GIIN), B Lab and the Social Impact Investment Taskforce established by the G8 Countries are actively working to bring standards/definitions to the management of impact, the outputs of which are likely to simplify the philosophical debate.

This report recommends that interested investors begin engaging in some capacity, re-evaluate, assess different strategies and then course-correct based on experience and developments in both the overall sphere of impact investing and in the investor’s unique circumstances. In short, don’t let perfect be the enemy of good. If we take as given that all approaches within the sustainable and responsible investing universe have merit and can have a positive impact, then experience in any of these approaches may be an “on-ramp” toward future additional engagement with other approaches in sustainable and responsible investing.

Charting the Course 9 3. The Economic Viability of Impact Investing

A recent research collaboration of asset managers and academics consider if investments within the ESG spectrum can help position on sustainability in investment concluded that, “Portfolios and themselves competitively. strategies we judge as well-suited to present-day conditions will • One such study examined 180 US companies segmented prove unsuited to future conditions. We argue that investors, into “high sustainability” and “low sustainability” cohorts who previously have been able to ignore [ESG factors] or react to based on dimensions of corporate governance, active changing conditions by making a series of small changes to their stakeholder engagement and measurement/disclosure from strategy, run a significant risk that their performance will not be the early 1990s to 2010. The study found that US$ 1 invested 17 sustainable into the future.” Such statements are indicative of in a portfolio of the high sustainability firms would have grown the growing recognition of a need for new ways of thinking and of to US$ 22.6 by the end of 2010, while a US$ 1 portfolio in the incorporating non-financial considerations in investment decisions low sustainability firms would have grown to US$ 15.4.18 among mainstream investors. Yet, many investors remain on the fence and want to see a definitive case for impact investing. What • Another recent study focused on institutional investors would such a case look like? to determine how they are incorporating ESG into their investment strategies and what’s driving them to do so. The Currently there is a shortage of robust datasets, risk/return models survey respondents represent US$ 7.6 trillion assets under and benchmarks for impact investments that would enable management and include many large institutional investors analyses to compare performance among impact investments or that provide capital used by companies to finance growth. to compare traditional investments to impact investments – a point 80% of these investors are already considering ESG issues in often cited by mainstream investors as a challenge to engagement. their investment decisions and nearly three-quarters of them However, while developing such analyses will be necessary as cite risk mitigation as a primary reason – more specifically, impact investing matures, we believe that framing the case for that upfront consideration of issues like climate change and impact investing based on returns and track records does not resource scarcity will reduce risk. Furthermore, approximately capture important additional dimensions which are worthwhile to 50% of respondents consider these issues in order to consider. Furthermore, evaluating the viability of impact investing enhance investment returns and to avoid investing in firms 19 as a whole will likely remain a daunting task as would, for example, with unethical conduct. evaluating the entire set of actively managed mutual funds – such • A third study performed by an investment adviser and funds focus on different asset classes, employ different strategies portfolio management firm analysed over 8,500 investments and there are over-and under-performers in any cohort. and funds globally (including corporate debt and equity, government and non-profit muni bonds, private equity, Therefore, this section focuses on the long-term viability and the real estate trusts) and has rated nearly 80% of the globally case for impact investing on three dimensions. The first considers traded equity market to conclude that markets tend to lessons from the evolution of ESG, the second evaluates a set of ignore 20 factors of future risk, potential return and impact. compelling global economic and demographic trends and the third Over a three-year time period ending 31 December 2013, provides select spotlights on support from the public sector. higher impact portfolios out-performed a traditional portfolio model based on modern portfolio theory on return (10.5% 3.1 Lessons from ESG Integration annualized vs. 8.9%, higher by 1.6% per year) and risk (11.3% annual volatility vs. 13.0%, lower by 1.7% per year).20

3.1.1 ESG Integration – Financial Performance and Risk • In June 2012, Deutsche Bank released a broad review of academic literature on the relationship between ESG factors While initially mostly applied to publicly listed equities, ESG and investment returns – findings were based on 56 research integration is increasingly reflected in other asset classes and papers, two literature reviews and four meta-studies. 100% applied by a wider group of investors. This expansion indicates of the academic research reviewed showed that firms with investors’ willingness to consider non-financial metrics in investing high ratings for CSR and ESG factors had a lower cost of decisions and a belief that such metrics may drive long-term capital in terms of debt and equity. In addition, almost 90% of risk mitigation and value – a perspective that in the past was not studies examined showed that firms with high ratings for ESG widely held. A growing body of academic research and industry exhibit market-based outperformance and accounting-based 21 developments indicate that companies voluntarily adopting social outperformance (89% and 85% respectively). and environmental sustainability policies can outperform companies that do not on the basis of stock market performance. While the Although the results of these studies do not directly link to impact empirical evidence around how ESG criteria affects financial returns investing performance, they do indicate correlation between is still preliminary, there are notable efforts that can help investors creation of long-term value and incorporation of non-financial

10 Charting the Course criteria in enterprise management. In coming years, we expect Since the investments underlying this growth are predominantly studies to shed further light on the risk and return characteristics of composed of liquid, publicly traded securities, relatively less impact investing and the link between impact and long-term value. market-building and ecosystem-development was required to get to a trillions order of magnitude. The growth story of ESG 3.1.2 ESG Integration – Growth in Allocated Assets does, however, demonstrate an increasing appetite to incorporate societal and environmental considerations in investment decision- The inclusion of social and environmental considerations is making and as previously mentioned, can serve as an on-ramp for resonating with institutional investors as evidenced by the adoption mainstream investors considering impact investing. of screening and ESG integration. This trend offers a meaningful precedent for impact investing. From 1995 to 2012, ESG integration 3.2 Impact Investing Today assets under management in the United States grew from US$ 166 billion to US$ 3.3 trillion; an increase of nearly 20 times (see Figure Despite the buzz surrounding impact investing, it remains a small 2).22 Similarly, in Europe, ESG integration grew from approximately proportion of the estimated US$ 13.6 trillion universe of global € 0.6 trillion to € 3.2 trillion from 2005 to 2011, an increase of funds invested in sustainable and responsible strategies.26 While nearly five times in a six year period (see Figure 3).23 Currently, it estimates of the current size of the impact investing sector vary, is estimated that globally 21.8% of total managed assets employ the size of the sector is likely larger than US$ 46 billion – the AUM some form of sustainable investment strategy.24 Furthermore, of respondents to a 2014 survey by JP Morgan and the GIIN. In the number of United Nations-backed Principles for Responsible that survey, 124 impact investors reported that they collectively Investing (PRI) signatories has grown from 100 to 1,188 in the manage US$ 46 billion of impact investments and are targeting period for 2006 to 2013. Signatories to the PRI indicate that they to make an additional US$ 12.7 billion in investments in 2014, hold the belief that the incorporation of environmental, social and up from 10.6 billion deployed in 2013 (see Figure 4). While the governance factors affects portfolio performance.25 respondents differ in each of the years, there is a discernable

Figure 2: GrowthFigure of US 2: Managed US Growth Funds Incorporatingof Funds Managed ESG Incorporating ESG

3,500 3,314

3,000 2,554 2,500 2,157 2,123 2,018 2,000 1,704 1,502 1,500

1,000 533 500 166 0 1995 1997 1999 2001 2003 2005 2007 2010 2012

Assets Under Management (US$ billion)

Source: US SIF Foundation, 2012 Report on Sustainable and Responsible Investing Trends in the United States

Figure 3: Europe Growth of Funds Managed Incorporating ESG Figure 3: Growth of European Managed Funds Incorporating ESG

3,500 3,204

3,000 2,811

2,500

2,000

1,500 1,025 1,000 639 500

0 2005 2007 2009 2011 Assets Under Management (€ billion)

Source: Eurosif, European SRI Study 2012

Charting the Course 11 growth trend. In the most recent survey, respondents indicated that Rise of LOHAS Consumers Around the World: the top three geographies in which they are increasing allocations Both developed and emerging economies are experiencing are sub-Saharan Africa, East & South East Asia and South Asia. significant growth of “Lifestyles of Health and Sustainability” The top three sectors in which they are increasing allocations are (LOHAS) consumer segment. Examples of LOHAS businesses food & agriculture, healthcare and financial services (excluding include organic and fair trade products, natural home goods, microfinance).27 sustainable eco-tourism and social businesses such as TOMS Figure 4: Annual Impact Investment Volume (SurveyShoes, Based) Warby Parker,2010-2014 Method Products and Kind Bars. LOHAS customers are interested in having the products they purchase Figure 4: Annual Impact Investment Volume (Survey Based) reflect their personal values and they want their purchases to 2010-2014 positively influence society. Since the term was established 14 12.7 in the early 2000s, the LOHAS market has grown over 10% annually and is approximately US$ 300 billion in size. 28 The 12 2014 Deloitte Millennial Survey reveals that nearly 30% of 10.6 millennials, who are estimated to inherit US$ 30 trillion over the 10 next 30 to 40 years, believe the success of business should be 8.0 measured in terms of more than just financial performance, with 8 a focus on improving society among the most important things that a business should seek to achieve. Furthermore, they 6 believe business can do more to address society’s challenges of resource scarcity (56%), climate change (55%) and income 4 inequality (49%).29 In short, consumer demand for socially conscious, health and sustainability products may increasingly 2 create opportunities for impact investors.

0 Growing Base of the Pyramid Consumer Class: 2012 2013 2014 (Planned) The McKinsey Global Institute estimates that the global Annual Impact Investments consumer class, made up of people earning more than US$ 10 a day, will have grown from 2.4 billion people in 2010 to 4.2 (US$ billion) billion people in 2025. At that level of income, individuals in this Source: JP Morgan GIIN, 2012 – “Perspectives on Progress: The Impact Investor class can make discretionary purchases such as televisions Survey”, 2013 & 2014 – “Spotlight on the Market: The Impact Investor Survey” and refrigerators. Companies and investors that can adapt (Note: Number of respondents for each year were as follows: 2012: 88, 2013: and innovate to effectively service this emerging class of new 125, 2014: 124) consumers stand to capitalize on a market growth opportunity on par with the Industrial Revolution.30 Differing definitional interpretations make precise sizing of the impact investing sector challenging at this point. Despite the Shifting of Economic Growth to Emerging Economies: imprecision in sizing, the observable growth trend is an optimistic Close to half of global GDP growth is expected to come from indicator that the sector is advancing. Steady and continued emerging market cities in the period from 2010 to 2025.31 From engagement by self-identified impact investors, mainstream 2000 to 2010, 21 emerging economies doubled their GDP32 investors, market building intermediaries and mainstream financial and in 2015, emerging markets are expected to grow by 5.4% services providers is critical to continue building the momentum. while advanced economies are only expected to grow by 2.3%.33 It is likely that impact investments will play a significant role in this economic growth story given the strong connection 3.3 The Case for Impact Investing between social/environmental impact, emerging market investment activity and economic development. The case for impact investing is driven by a set of compelling global trends. These megatrends are creating a set of social and environmental challenges that are increasingly addressed through Increasing Constraints on Natural Resource: market-based solutions, sometimes receiving public-sector Global population growth and the growing consumer base support. in emerging markets will continue straining global natural resources. The UN estimates that by 2030, the world will need 34 3.3.1 Global Mega-Trends: Shifting Consumer Demands 30% more water, 40% more energy and 50% more food. and Emergence of New Markets Potential water crises and food crises were identified in the Forum’s 2014 risk report as among the top 10 global risks.35 Economic and demographic mega-trends are creating a future for Additionally, the 2014 Deloitte Millennial Survey revealed that the investing that will look different from the recent past. These trends millennial generation views resource scarcity and environmental are relevant for all businesses and the opportunities to capitalize protection as two of the top five challenges facing society in the 36 on them can be captured through many forms of investment. next 5 to 10 years. A stable and productive global economy However, in many cases the interconnected nature of social and depends on addressing such challenges and it is likely that the environmental issues with these trends is particularly well-suited to private sector will be increasingly motivated to drive economic the impact investing approach. For example, the impact investing and financial value in spite of – and even from – resource approach can help identify new opportunities that may not be scarcity and environmental protection. captured through evaluation of investments on financial terms alone. Furthermore, impact investing can be a means to mitigate Limitations of the Public Sector to Provide Services risks associated with the mega-trends themselves – business and and Infrastructure: services that are fundamentally useful to society can be more viable Potential fiscal crises were identified as the top risk in the in the long-term. The following discussion highlights a select group Forum’s 2014 risk report.37 Governments are currently facing of these mega-trends which will play a significant role in shaping a confluence of factors that threaten provision of public the future of investing. goods and services. Ageing populations are putting a strain

12 Charting the Course on medical and social programmes. Additionally, many CSR activities and to monitor such activities.42 Additionally, for developed countries are still dealing with the budgetary effects more than 40 years, the Reserve Bank of India has required of decreased tax revenues and expensive fiscal stimulus that state-owned and private banks make at least 40% of their packages as a result of the global recession. While in many lending activity to certain priority sectors; foreign banks must emerging markets, social and economic progress is leading to meet a 32% threshold. Priority sectors include agriculture, small increased pressure on governments to improve infrastructure enterprises, education and housing.43 as well as medical and social care. In some cases where the public sector falls short, private sector investment can support France – Pension Fund Requirements: financially-viable and market-based solutions to social and Since 2010, France has required organizations that provide environmental problems. employee savings plans to offer at least one “solidarity-based” – or impact – plan. Such plans must invest between 5% and In short, traditional notions of value-creation held by investors and 10% of their capital in social enterprises. This adds up to € 2.6 society are going to be changed by increasing consumer demand billion (US$ 3.5 billion) in invested capital.44 for social value products in developed markets, the need for social inclusion to support growth in emerging markets and projected scarcity of natural resources. Impact investing is one approach US – Social Investment Market Stimulus: well-suited to capitalize on these trends. In 2011, the US government announced the launch of the Start-up America initiative designed to spur high-growth entrepreneurship in America. A key contribution to this initiative 3.3.2 Public Sector Support from the Small Business Administration (SBA) is the Small Business Investment Company (SBIC) Impact Investment Similar to the public sector policies that helped launch the initiative. The initiative has committed to making US$ 1 billion professionally managed venture capital sector in the mid-1960s available to investment funds licensed as SBICs provided that through to the 1970s38, governments are beginning to sponsor half of the capital is deployed into impact investments. Impact and support initiatives that facilitate the flow of capital to social SBICs currently manage US$ 176 million in assets and have entrepreneurs and investment managers who link social outcomes invested in 17 companies which collectively employ 1,500 to financial returns. Such public policy initiatives can come in people.45 According to the SBA, eligible impact investment the form of incentives or reduced regulatory barriers which can be either location-based or sector-based. Location-based partially “de-risk” investments and catalyse the impact investing investments may fall into three categories: low- and moderate- ecosystem. We have highlighted below some of the key policy income areas, rural areas or economically-distressed areas.46 actions underway in the UK, India, France and the US. While such public sector support is not expected to make impact investing Beyond the efforts of the SBA to spur impact investing in the immediately compelling for all investors, it can have the effect of US, the Department of Commerce has also been active in making it easier for otherwise reluctant actors to engage. supporting impact investing. In the past year, the International Trade Administration, a bureau within the Department of Commerce, has certified two trade missions to Europe. Each UK – Social Investment Market Stimulus: mission involved European LPs meeting with 10 US-based fund Big Society Capital (BSC), a UK social investment company managers focused on impact and sustainability strategies.47 established by the Cabinet Office and launched as an Additionally, there are dialogues around including impact independent organization in April 2012, seeks to have a investing and sustainability language in trade agreements. transformative impact on the social investment market in the UK. It aims to do this by providing access to capital for social As the public sector looks for ways to continue supporting the investment intermediaries as well as by increasing awareness mainstreaming of impact investing, incentives and regulations of and confidence in impact investing by promoting best need to continue supporting impact investing beyond philanthropic practices, sharing knowledge and fostering links between social activity. Detailed policy levers have been outlined in a recent report investment and mainstream capital markets. The bank was from the Asset Allocation Working Group of the Social Impact initially financed with £ 400 million of dormant bank assets and Investment Taskforce, established by the G8 countries. £ 200 million invested by four large financial institutions.39 Since inception, the organization has committed nearly £ 150 million in investments to specialist organizations that invest in charities and social enterprises.40 Additionally, the UK has introduced legislation that provides tax advantages to impact investors. The Seed Enterprise Investment Scheme (SEIS) was launched in April 2012 and was formed to stimulate entrepreneurial activity. SEIS provides a de- risking mechanism for start-up investors by offsetting income tax liabilities by up to 50% on qualifying investments that do not succeed. Additionally, in March 2014, a 30% income tax relief measure was announced for new social investments, the same as the rate for enterprise investment schemes and venture capital trusts.41

India – CSR Requirements: Although not directly related to impact investing, examples from India show how government regulations can lead capital toward social and environmental impact. As of mid-year 2014, companies in India that meet certain tests of size (for example, companies with a net worth of INR 5 billion, or at the time of publishing, approx. US$ 83 million) are required to formulate a CSR policy, to spend 2% of average annual net profits on

Charting the Course 13 4. Getting Started with the Roadmap to Impact Investing

For mainstream investing organizations, building out and executing portion of assets. Given both the effort and the complexity involved an impact investing strategy will require developing a mix of new with strategic change, initial evaluation and piloting of impact internal capabilities and external partnerships as well as working investments are, for many investors, good and prudent preliminary through cultural and organizational changes. The co-ordination of stages. Moreover, in some cases where stakeholders are sceptical such an effort requires a structured mobilization of financial, human of impact investing, such steps may be critical to building and technological resources. And naturally, organizations will have consensus. Based on an organization’s vision for impact investing, different goals and starting points. Accordingly, this report suggests an organization may choose to “evaluate”, “pilot” or “accelerate” mainstream investors structure an individualized approach to impact investing activities across different organizational units at impact investing according to four high-level steps as introduced different times or across the organization as a whole. here in the Impact Investing Roadmap (shown in Figure 5). The steps are as follows: 3. Strategic Pillars and Tactical Maps Third, execute an investment strategy, organization strategy and 1. Vision and Leadership ecosystem strategy. These are the strategic pillars that will allow First, define a clear vision for impact investing. It is critical to the organization to build impact investing capabilities as well to test establish organizational support for the initiative and to build and iterate what works. Each of these strategic pillars is made up stakeholder consensus on the work that will be required. In of sub-components which will be covered in-depth in Section 5. outlining the organization’s vision, leaders should clarify the organization’s motivation for pursuing impact investing, identify 4. Learn, Iterate and Evolve specific and relevant contextual factors and set market goals. No Fourth, evolve and grow the vision for impact investing as the two organizations will approach impact investing with the same organization learns and matures. As a mainstream investor motivations, from the same starting point, with the same goals – evaluates, pilots and accelerates impact investments, it is important understanding these unique factors will enable an organization to to take stock of successes and setbacks. This will allow for chart its own course. refinement of the vision for impact investing which in turn, will help ensure that stakeholders are aligned and that the organization is on 2. Stages of Impact Investing Engagement a path suited for its motivations, context and goals. Second, determine target “stages” for engagement with impact investing. It is ambitious to suggest that mainstream investors This Section will cover steps 1 and 2 in detail. Steps 3 and 4 will be begin involvement with impact investing by reallocating a significant covered in Section 5.

Guiding Principles

Through the journey toward impact investing, mainstream investors should mind a set of commonly cited guiding principles that informed the creation of the impact investing roadmap. No one-size-fits-all approach: To navigate the complexity of impact investing, investors should define an approach that suits their motivations and unique context. Avoid analysis-paralysis: Philosophical debates about what counts as impact investment versus other types of responsible investment will likely continue as the field matures. The key is to engage in some capacity at first and then course-correct and re-evaluate the strategy over time. Work with and around challenges: Recognize and acknowledge challenges, determine which ones are show-stoppers and which ones can be creatively addressed. Making this determination will help investors to remain action-oriented. Willingness to shape the opportunity: Success in impact investing can require investors to think multiple steps ahead of the current landscape and to play an active role in developing the marketplace. If this is done well, early investors will be well-positioned to benefit from future growth in impact investing activity.

14 Charting the Course Figure 5: The Impact Investing RoadmapFigure 5: The Impact Investing Roadmap

VISION & LEADERSHIP STAGES OF ENGAGEMENT TACTICAL MAPS A clear vision for impact investing should …allowing for stages of impact investing …which in turn will help the organization clarify the be defined, upfront… to be pursued, according to roadmap to impact investing. organizational goals and constraints…

Capital Investment Investment Impact Sources Vehicles Sourcing INVESTMENT STRATEGY

Accelerate Pilot Structure Culture Talent Technology Understand Determine Set Evaluate Motivation Context Market Goals ORGANIZATION STRATEGY VISION & LEADERSHIP STAGES OF ENGAGEMENT

Networks Partnerships Academia Technical Assistance ECOSYSTEM STRATEGY

Leadership should continue to evolve and progress the vision as the organization matures through stages of impact investing.

4.1 Breakdown of Mainstream Investors To coarsely summarize the goals of these two groups – asset owners’ objectives involve achieving portfolio performance Before delving into a discussion of internally-driven motivations according to an investment philosophy/policy while financial and organizational context for impact investing, it must be services providers have the added objective of profitably supplying acknowledged that the term “mainstream investors” refers to investment products and/or services to clients that deliver on risk- a diverse group of institutions with differing clients, regulators, adjusted return expectations. While these objectives may seem fiduciary responsibilities and organizational structures. Accordingly, obvious, we point them out to highlight the fact that each of these the following discussion will segment mainstream investors into the groups is driven by different motivations and contexts that will following types: affect how they choose to engage in impact investing. Admittedly, there are a myriad of other nuances among and within these groups – however, such differences go beyond the scope of this Asset Owners, Financial Services Providers, report. comprised of… comprised of… • Insurance companies • Liquid investment funds • High net worth/family offices (mutual funds, hedge funds) • Pension funds/endowments • Illiquid investment funds • Foundations (private equity, venture capital)

• Diversified financial institutions/banks (note that these investors frequently act as both asset owners and financial services providers)

Charting the Course 15 4.2 Roadmap Step 1 – Vision and Leadership 1. The motivations for pursuing impact investing 2. The internal context in which the organization is pursuing As there is no one-size-fits-all approach, building out and impact investing (i.e. the starting point) executing an impact investing strategy can be challenging, requiring patience, discipline and focus. Accordingly, before 3. The goals that align with 1 and 2 applying impact investing approaches, an organization should define its vision for impact investing that reflects: These three components of an impact investing vision will help leaders align the organization and define the tactics necessary to move forward.

Role of Leadership

An impact investing strategy can require major changes from an organization. For example, employees trained in financial analysis may need to adopt new skills to consider non-financial aspects of investments – an adjustment that could encounter scepticism. Or an organization may need to forge new partnerships for the purpose of investment sourcing, knowledge- and best practice-sharing, as well as talent recruitment. Focused leadership is necessary to drive the changes, communicate the benefits and sustain momentum. Furthermore, responsibility for executing the strategy should not be dispersed among numerous teams and initiatives but rather rest within one individual or team that has the support of leadership, that is accountable and that has the execution of the strategy as its highest priority.

Leaders of institutional investment firms and large banks engaged in responsible and impact investing stress the importance of the core belief that long-term financial value is driven by considerations that may not traditionally have been taken into account. Senior executives who hold such beliefs are instrumental in driving the vision for and implementation of impact investing. Below are examples of relevant statements from a variety of asset owners and financial services providers.

We are dedicated to making a In the long term, addressing the posi2ve contribu2on to society world’s social and environmental through our focus on the problems is not only cri2cal to global environment, our communi2es, stability and economic vibrancy but responsible business prac2ces, it also creates opportuni2es for strengthening the next genera2on financial returns. of ci2zens, and our people.

Mainstream Investors Holders of systemically significant You have to believe in the long term pools of capital have a role to play in value crea2on of the combina2on of addressing social and environmental financial and non-­‐financial problems. considera2ons.

16 Charting the Course 4.2.1 Motivation motivations for mainstream investors will be suggested as a starting point. A clearly articulated rationale for pursuing engagement in impact investing is the first step in sharpening objectives and gaining Mainstream investors will likely find that many of their motivations fit buy-in from key internal stakeholders. As discussed in Section into one of several broad categories. Of course, organizations may 3, there are significant economy- and society-level trends that choose to redefine this set at they see fit: support the economic viability of impact investing. But what other, • Financial internally-driven motivations exist for mainstream investors to get involved with impact investing? This Section will begin with a set • Client/Stakeholder of questions, shown in Figure 6, that apply to different mainstream • Competitor investor types and which can help identify motivations that are • Values/Impact specific and relevant to the organization. Then, a set of potential • Talent

Figure 6: Questions to Clarify MotivationFigure 6: Questions to Clarify Motivation Fin. Services Asset Owners Providers Insurance Companies Foundations Endowments Funds (PE / / VC) Funds (PE Funds (MF / HF) / Funds (MF Pensions Funds / Liquid Investment Institutions/Banks Institutions/Banks Illiquid Investment Diversified Financial Diversified Financial Type Questions to Clarify Motivation HNW/Family Offices

Financial Is there a belief that addressing social and environmental challenges will be drivers of attractive risk-adjusted returns? If so, how important is it         now to begin positioning to capture the opportunity?

Financial Do poorly understood risk-reward profiles in developing and frontier markets present undervalued and attractive investment opportunities?        

Financial Can impact investments facilitate access to other traditional investments in new markets or geographies? How beneficial is the resulting “on the         ground” experience in the long term?

Financial Given that improvement to social infrastructure generally moves in lock- step with economic development, would social and environmental impact benefit existing investments? (e.g. consumer products companies         benefiting from the addition of basic services in a developing market)

Client / Is the organization being encouraged by stakeholders to more actively Stakeholder seek impact from investments?       

Client / What is client demand and interest for impact investing products and Stakeholder, solutions? Does the organization expect this demand/interest to grow?     Competitor

Competitor Are competitors/peers engaged or beginning to engage with impact investing? How important is it for the firm to be an innovator and market         leader in impact investing?

Values / Does impact investing align with the values of the organization? Would Impact impact investing activities help strengthen the ways in which the         organization puts those values to practice?

Values / How does the investor perceive its role in creating more stable and Impact sustainable societies, markets and natural resource stocks?        

Values / Will impact investing activities attract talent to the organization and/or Impact, improve existing employee engagement? Will it help to enhance the Talent, Client brand and signal long-term vision?         / Stakeholder

Note that the questions which apply to an investor will depend upon unique circumstances.

Charting the Course 17 Building from the questions shown in Figure 6, Figure 7 shows comprehensively represent the entire scope of factors affecting motivational factors that asset owners and financial services these groups. Rather, they are shown here to serve as potential providers may choose to consider. The factors by no means starting points for mainstream investors.

Figure 7: Potential MotivationalFigure Factors 7: Potential for Impact Investing Motivational Factors for Impact Investing Fin. Services Asset Owners Providers Insurance Companies Foundations Endowments Funds (PE / / VC) Funds (PE Funds (MF / HF) / Funds (MF Pensions Funds / Liquid Investment Institutions/Banks Institutions/Banks Illiquid Investment Diversified Financial Diversified Financial Type Potential Motivations HNW/Family Offices Financial Impact investments could present diversification benefits to the portfolio        

Financial Long-term investment approach and liability-matching aligns with the time horizons of certain impact investments  

Financial Addressing social and environmental issues may help build a better understanding of insurance/debt underwriting exposure, and potentially     even reduce such exposure

Financial, (US-specific) CRA requirements can be achieved through additional Values / impact investment approaches (e.g. in addition to existing CRA-related   Impact investing activities)

Financial, As “universal owners”, economy- and market-level development activities Values / are an important goal and related to overall investing success     Impact 

Financial Impact investing is a means of creating good-will, on the ground expertise and first-mover advantage in new markets     

Client / The millennial generation is set to inherit trillions of dollars in coming Stakeholder years and impact investing presents a way to attract and retain them as      clients

Client / Beneficiaries are lobbying for more social and environmental impact from Stakeholder their investing activities    

Client / Clients are expressing an interest in impact investing-backed products Stakeholder    

Competitor Other, similar investors are already making impact investments        

Values / Impact investing is not only a way to create positive change but also a Impact strong means of demonstrating the organization's values, thus enhancing      public perceptions

Values / Post financial crisis, there is a perceived value in demonstrating positive Impact impact – large financial institutions are increasingly expected to play a     positive societal role

Talent Impact investing activities can provide in-demand development opportunities for high-value employees, enhancing talent recruiting and         employee engagement/retention

Note that the motivations which apply to an investor will depend upon unique circumstances.

18 Charting the Course 4.2.2 Context robust ESG integration and corporate engagement/shareholder programmes. Others may already be making impact investments Each organization will be subject to unique contextual factors and looking for opportunities to do more. Regardless, it is that influence the investments it can realistically pursue and how necessary to understand the investor or institution’s starting point it will get there. These factors include the organization’s current before moving on to design appropriate impact investing goals. investing model and the organization’s prior experience in the Figure 8 shows a set of questions that can be used to analyse an broader realm of sustainable and responsible investing. Some organization’s current context. investors may have little background while some may have

Figure 8: Questions to Clarify Context Figure 8: Questions to Clarify Context Fin. Services Asset Owners Providers Insurance Companies Foundations Endowments Funds (PE / / VC) Funds (PE Funds (MF / HF) / Funds (MF Pensions Funds / Liquid Investment Institutions/Banks Institutions/Banks Illiquid Investment Diversified Financial Diversified Financial Type Questions to Clarify Context HNW/Family Offices

Financial Do statutory constraints limit or impede the investable universe? (e.g. ERISA/fiduciary duty, MRI tax implications for foundations in the US)     

Financial Do governance or investment policies limit the investable universe? Can they be changed?     

Financial Are there operational constraints driving minimum investment size restrictions and the related economics of due diligence? Are there      solutions available to diminish such barriers?

Financial How comfortable is the organization with notions of patient capital and making long-term investments?     

Financial Does the investor allocate only through intermediaries/fund managers or a combination of intermediaries/fund managers and direct investments?     

Financial What are the investing financial return characteristics? (e.g. foundations and some HNWI may be interested in concessionary return investments while investors with fiduciary duty like pension funds and insurance      companies likely will not)

Financial Is the firm able to partner with specialist impact investors to facilitate product launches through joint ventures or seed funding?   

Financial, Is there a belief that investments can address social and environmental Values / challenges and also deliver attractive risk-adjusted returns?         Impact

Financial, Are there specific impact themes that align with the mission or the core Values / business? For example: Impact - Insurance companies with direct exposure to the impact of extreme weather and intensive use of natural resources investing in green bonds      to support sustainable growth and development - Global diversified financial institutions seeking “license to operate” or strengthen their competitive positioning in new geographic sectors

Talent What is the organization’s level of experience and stock of intellectual capital in making impactful or impact investments?        

Talent Do we have the required skills and knowledge to integrate impact strategies in our mainstream processes?        

Talent Are corporate social responsibility (CSR) departments and corporate foundations positioned to play a role in facilitating a firm’s entry into    impact investing?

Note that the questions which apply to an investor will depend upon unique circumstances.

Charting the Course 19 4.2.3 Market Goals Impact Goals Once a mainstream investor has identified its motivations and its organizational context, it should define a clear set of goals for the Motivation Context impact investing initiative. These goals will help the organization • Impact investing • The organization highly values its to define the tactical steps of the initiative, to communicate about is a way to create philanthropic and CSR activities and the initiative to all employee levels, to allocate resources and to positive change and focuses those activities on specific measure the success of the initiative over time. demonstrate the social and environmental issues organization’s values • A set of key leaders within To define impact investing goals, an organization should consider the organization believes that each motivation and account for any relevant contextual factors. investments can address social and Market goals will be as individualized as the other factors environmental challenges and also discussed above and accordingly, a comprehensive discussion deliver risk-adjusted returns of possible goals goes beyond the scope of this report. However, Market Goals see below for illustrative examples of how a diversified financial • Review current investing activity to identify any existing areas institution might define a set of impact investing goals based off of of impact the related motivational and contextual factors. • Define and evaluate potential impact investing target areas • Determine how CSR or philanthropic activities can include impact investing Client Goals

Motivation Context • The millennial • The organization does not Talent Goals generation is set currently offer impact investing to inherit trillions of products Motivation Context dollars in coming years • The exact nature of impact • Impact investing activities • Managers are hearing that and impact investing investing demand from clients can provide in-demand certain employees are presents a way to is not known but if clients are development opportunities interested in impact investing attract and retain them interested, they are not likely to be for high-value employees, • A small handful of Analysts as clients attracted to concessionary return enhancing talent recruiting and Associates have investments and employee engagement/ left for impact investing retention organizations Market Goals • Conduct a survey to both measure and segment client Market Goals demand for impact investing products • Gather details on employee interest in impact investing (e.g., • Identify and evaluate third-party products which could meet allocating part of an employee’s time to an impact investing client demand initiative, going through a rotational programme)

20 Charting the Course 4.3 Roadmap Step 2 – Stages of Impact Investing Engagement

Once a mainstream investor determines a vision for impact investing, what might potential stages of involvement look like? There are numerous ways in which a mainstream investor can engage with impact investing. This is simplified here into three stages of engagement as seen in Figure 9. Figure 9: Stages of Engagement Figure 9: Stages of Engagement

Accelerate and Institutionalize Impact Investing

Pilot Engagement in Accelerate Impact Investing Expanding Impact Investing Across Business or On-Ramp Toward Pilot Portfolio Impact Investing Piloting Engagement in Impact Impact Investing Investing’s Evaluate Proximity to Core Sustainable and Evaluating Business Responsible Investing Engagement Models for Impact Positive / Negative Screens, Investing ESG Integration, Active Ownership

Depth of Engagement with Impact Investing Defined Impact Vision ◑ ◕ ● Senior Leadership Commitment ◑ ◕ ● Making Impact Investments or Offering Products ○ ◑ ● Measured Impact Objectives ○ ◑ ● Periodic Reporting ○ ◑ ● Ecosystem Involvement ○ ○ ○

Spotlight – Pilot Spotlight – Accelerate

UBS took interest in the Development Impact Bond, liking the Zurich Insurance Group has placed “Responsible Investment concept but not seeing clear proof of its viability. Therefore, rather Champions” within asset management and investment teams to than developing a vehicle for client investment, UBS felt that its serve as conduits to communicate strategy and to share new ideas corporate client foundation (Optimus Foundation) may be the and feedback with the Responsible Investment Team. Furthermore, appropriate entity to test the waters and do the proof of concept. they serve as ambassadors for the overall strategy and field If successful, UBS may choose to replicate it at much larger scale questions from teammates. This structure enhances the overall and then open it up to client investments. culture around responsible investment and impact investing by closely aligning with the core business groups.

Charting the Course 21 5. How to Proceed: Tactical Maps

This Section presents tactical maps which an investor or institution In the following pages, each tactical map highlights steps which may consider in developing and implementing impact investing pertain to specific types of mainstream investors. Additionally, strategies. The maps are segmented into three strategic pillars real world examples are included to help bring these strategies (investment strategy, organization strategy and ecosystem and tactics to life. Note that the relative degree of importance and strategy). These pillars and tactical maps can be seen at the right depth of involvement with each map will differ depending on the side of the Impact Investing Roadmap as shown in Figure 10. stage of engagement and type of institution.

Figure 10: The Impact Investing RoadmapFigure 10: The Impact Investing Roadmap

VISION & LEADERSHIP STAGES OF ENGAGEMENT TACTICAL MAPS A clear vision for impact investing should …allowing for stages of impact investing …which in turn will help the organization clarify the be defined, upfront… to be pursued, according to roadmap to impact investing. organizational goals and constraints…

Capital Investment Investment Impact Sources Vehicles Sourcing INVESTMENT STRATEGY

Accelerate Pilot Structure Culture Talent Technology Understand Determine Set Evaluate Motivation Context Market Goals ORGANIZATION STRATEGY VISION & LEADERSHIP STAGES OF ENGAGEMENT

Networks Partnerships Academia Technical Assistance ECOSYSTEM STRATEGY

Leadership should continue to evolve and progress the vision as the organization matures through stages of impact investing.

22 Charting the Course 5.1 Revisiting the Breakdown of Mainstream 5.2 Roadmap Step 3 – Investment Strategy Pillar Investors The investment strategy pillar focuses on the different ways Here we reintroduce the breakdown of mainstream investors (first mainstream investors can deploy capital into impact investments used to differentiate organizational motivations, contexts and and how social and environmental impact is reflected in those goals in Section 4.1.1). This time, the segmentation will be used to investments. This includes integrating more traditional components differentiate the tactics laid out in the roadmaps. of an investment strategy – defining the capital sources for investments, determining appropriate investment vehicles and sourcing investment opportunities – with impact-focused activities Asset Owners, Financial Services Providers, including defining strategies to target and measure impact. As an comprised of… comprised of… investor gains experience and as impact investing approaches • Insurance companies • Liquid investment funds evolve, we expect investors to iterate these approaches. • High net worth/family offices (mutual funds, hedge funds) • Pension funds/endowments • Illiquid investment funds • Foundations (private equity, venture capital)

• Diversified financial institutions/banks (note that these investors frequently act as both asset owners and financial services providers)

Charting the Course 23 Investment Strategy – Capital Sources

The sources of capital for impact investments will vary by organization type. For example,organizations that are evaluating and piloting impact investing as well as organizations with fiduciary concerns about impact investing can consider making impact investments through a CSR function or through a corporate foundation. Such an arrangement could allow for the organization to test impact investing models on a small scale and determine what works. However, using this approach could risk causing impact investing to appear philanthropic in nature. In such a situation, internal advocates and champions should remain aware of risk and continue to seek opportunities to mainstream impact investing activities.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Investment: Capital Sources

Strategic Goals Tactics

Use corporate or family Provide grant funding to Deploy foundation Use foundation impact foundation as 'R&D' platform organizations working capital into piloted investments to build to develop the impact impact investments, experience, track for impact investing       investing sector leveraging expertise of record, and determine in-house investment “what works” 1 professionals

Use CSR channel to deploy Deploy foundation Use CSR impact Apply learnings from capital into impact investments capital into piloted investments to build CSR activities to build impact investments, experience, track impact investing     leveraging expertise of record, and determine activities into revenue- in-house investment “what works” generating business 2 professionals units

Deploy client/investor capital Survey clients/investors Develop impact Offer impact investing into impact investments sentiment on impact investing product or products to investing to determine conduct due diligence clients/investors     potential demand and offer on third-party impact investing 3 4 5 products

Deploy capital into impact Define preliminary Deploy capital directly investments from asset pool targets for impact into impact investments  investing allocation from asset pool 6 (e.g. .5%, 1%, 2%)

Deploy capital into impact Define preliminary Deploy assets from the investments through the targets for impact corporate general  investing allocation account into impact corporate general account 7 (e.g. .5%, 1%, 2%) investments

Deploy capital into impact Define preliminary Deploy bank balance investments using bank balance targets for impact sheet directly into investing allocation impact investments (e.g. sheet  (e.g. .5%, 1%, 2%) through lending activity 8 9 or principal investing)

24 Charting the Course Spotlight – Citi Foundation, Optimus Foundation (PKA)) committed DKK 1.2 billion at the first closing of the  Fund. IFU, an independent government-owned fund which • Citi Foundation invests in Innovations for Poverty Action (IPA) provides advisory and risk capital to Danish companies which supports testing and evaluation of innovative product wishing to set up operations in emerging markets, is designs and product-linked financial education interventions managing the DCIF. As the Fund develops, an additional for underserved populations.48 DKK 200 million is expected to be provided by additional • See Section 4.3 for the example of UBS’s corporate client institutional investors. Below are two examples of investments foundation, Optimus Foundation. that the Fund is considering: • Wind Farm: Lake Turkana, Kenya  Spotlight – Standard Chartered – DCIF investment: DKK 108 million (6.3% ownership), • In 2013, as part of Standard Chartered’s US$ 100 million Total expected investment: DKK 4.8 billion commitment to Seeing is Believing, its community investment programme which aims to improve access to eye care, the – 365 Vestas (Danish wind turbine company) will be Bank launched a US$ 3 million fund specifically designed installed in Lake Turkana generating 310MW which will to support innovation in eye health. The Fund is focused be the largest wind farm in sub-Saharan Africa on supporting innovators and social entrepreneurs who are – Planned exit through trade sale after five years or experimenting with new approaches to eye health delivery in investors will be issued redeemable shares the developing world. – Expected return (IRR p.a.): 19%  Spotlight – BBVA • Solar: Male Water and Sewage Company (MWSC), Maldives • BBVA has created a financial vehicle for private investors to invest in the social entrepreneurs identified each year through – DCIF investment: DKK 25 million (45% ownership), the Momentum Project, a programme of training and strategic Total expected investment: DKK 55 million support that allows entrepreneurs to grow and scale their – 8MW rooftop solar plan to be installed to partly replace social impact.49 diesel-based energy production – Expected return (IRR p.a.): 17%  Spotlight – AXA, Morgan Stanley, Goldman Sachs, UBS • AXA: € 150 million impact investing fund of funds50  Spotlight – Zurich Insurance Group • Goldman Sachs: Social Impact Fund51 • In July 2014, Zurich doubled its planned investment in green • Morgan Stanley: Investing with Impact Platform52 bonds. It now plans to allocate as much as US$ 2 billion to green bonds, citing their growing appeal in Europe.56 • UBS partnership with Obviam53  Spotlight – Prudential Financial  Spotlight – BNP Paribas, UBS, Credit Suisse • In June 2014, Prudential committed to building a US$ 1 billion 54 • BNP Paribas partnership with PhiTrust impact investment portfolio by 2020. Since 1976, Prudential • Credit Suisse partnership with responsAbility55 has invested nearly US$ 2 billion in impact investments, with a focus on three core areas: social purpose enterprises,  Spotlight – Danish Climate Investment Fund financial intermediaries and real assets.57 In 2013, Prudential 58 • In 2014 a Danish public-private partnership established made approximately US$ 100 million in social investments. the Danish Climate Investment Fund (DCIF) to create green growth in emerging markets. Four Danish pension funds  Spotlight – Big Society Capital (Pension Danmark, Paedogogernes Pensionkasse (PBU), • Barclays, HSBC, Lloyds and RBS made £ 50 million equity Dansk Vaekstkapital and Pensionskassernes Administration investments in Big Society Capital.59

Charting the Course 25 Investment Strategy – Investment Vehicles

As mentioned elsewhere in this report, the impact investing approach spans asset classes. Accordingly, investors should consider how impact will be reflected in each asset class. While some investors, notably certain family offices, have stated a goal to put 100% of assets into impact investments, this is not currently realistic for the vast majority of mainstream investors. Thus, it is recommended that when evaluating and piloting impact investments, mainstream investors target one or a handful of asset classes. For providers of financial products and services, offering an impact vehicle could mean offering a third-party product or developing a product in-house. Either way, it is recommended that the provider engages with clients and potential investors to determine preferences and sentiment around the attributes (including the social/environmental impact) of a potential vehicle.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Investment: Investment Vehicles

Strategic Goals Tactics Identify potential fit of impact Survey current portfolio to determine Determine suitable approach to make within asset classes risk/return/liquidity needs by asset impact investments, direct vs. class indirect and liquid vs. illiquid; Define • More Liquid: Deposits/Cash, the feasible “types” of impact and Public Equity, Equity Funds, Public responsible investments Debt, Fund of Funds • More Liquid (not exhaustive):        • Less Liquid: Real Assets, Private Impact Investing Mutual Funds, Equity or Debt Placements, Green Bonds Comingled Funds • Less Liquid (not exhaustive): Social Impact Bonds, Impact Private Equity, Impact Venture Capital, 1 2 3 4 5 Real Asset Investments

Build impact into current Choose asset class(es) in Based on learnings, Conduct impact due portfolios which to evaluate and evaluate asset class diligence alongside pilot preliminary impact allocations and targets traditional financial due investments; create an against identified diligence on potential inventory of impact investments – impact investments; If potential/interesting target areas where necessary, partner with      impact positions impact investment strategic co-investors positions might meet and create suitable needs of scale financial/legal structure (e.g. tranche risk, structure co- 6 7 investment)

Build impact investments into Determine client Based on client/investor future products/funds preferences around preferences, build a impact investments (e.g. product which partially     more impact in or wholly focuses on traditional products vs. impact investments dedicated products)

Offer third-party impact Source third-party Incorporate impact vehicles to clients/investors impact investment investing funds and products and provide solutions into overall   asset management product platform either services for such through in-house external investments development or third- party solutions

Utilize third-party asset/fund Identify fund managers Conduct traditional due managers and screen based on fit diligence on manager of investing strategy and additionally      and impact focus consider impact strategy, track record, and reporting capabilities

26 Charting the Course  Spotlight – Cash / Cash Equivalents  Spotlight – Real Assets • Impact investing allocations to cash assets typically take the • Impact investments in real assets involve managing such form of certificates of deposit, savings accounts and money assets so as not to deplete or damage their value, thus market accounts with community banks and local finance producing long-term benefit for society. institutions. For example, Triodos Bank offers a range of liquid offerings to individual, business and institutional customers  Spotlight – African Agriculture Capital Fund and only lends to and invests in organizations that benefit • In 2011, a group of six partners (USAID, Pearl Capital 60 people and the environment. Partners, JP Morgan Social Finance, Bill & Melinda Gates Foundation, Gatsby Charitable Foundation and  Spotlight – Fixed Income Rockefeller Foundation) launched a US$ 25 million African • Impact investments in fixed income can be in bonds issued by Agriculture Capital Fund (AACF). Pearl Capital Partners, a public sector or private sector entities. Such bonds typically specialized African agriculture investment fund manager result in a flow of capital to impact-focused enterprises or based in Kampala, Uganda, will invest the US$ 25 million projects which address issues with social or environmental in approximately 20 agriculture businesses in East Africa, implications. Green bonds, microfinance bond funds and CDFI targeting to raise the productivity and incomes of at least bonds are all examples of impact fixed income. 250,000 households. Pearl Capital Partners was established in 2005 and manages US$ 46 million across three agriculture  Spotlight – Public Equity funds. USAID has guaranteed 50% of an US$ 8 million • There are still relatively few publicly-listed companies which commercial loan from JP Morgan and the three foundations intentionally seek social or environmental impact alongside have jointly provided a US$ 17 million equity investment. financial returns. However, several developments make this a Under President Obama’s Feed the Future initiative, the Fund potential area of growth. For example, a growing number of also has access to US$ 1.5 million of technical assistance states in the US allow organizations to incorporate as benefit to help improve investee companies’ operations and corporations. This type of legal entity is required to consider competitiveness. The Fund is targeting a 15% gross annual the impact of its decisions not only on shareholders but also compounded return. Figure 11 graphically illustrates how the on workers, community and the environment.61 Another Fund is structured and Figure 12 illustrates how the AACF 65 supporting example is the UK’s Social Stock Exchange which investment review process is conducted. lists companies that have a publicly listed security and that meet certain impact criteria. 62  Spotlight – California Freshworks Fund The California FreshWorks Fund is a public-private partnership  Spotlight – Private Equity and Venture Capital loan fund which finances grocery stores and fresh food retailers • Impact investments in private equity and venture capital target in underserved California communities. From the Fund’s different impact themes, geographies and expected return US$ 125 million loan pool, US$ 100 million was raised from profiles. Therefore, rather than profile a few examples here, banks and insurance companies and allocated to a senior readers are encouraged to examine the GIIN’s ImpactBase debt tranche while US$ 25 million was raised from a group of database63 or Impact Assets 5064 for examples of such deals mission-driven investors and allocated to a subordinated debt currently in the market. However, given the high cost and tranche. Additionally, US$ 7.5 million in grants has funded a small average size associated with directly investing in impact first-loss reserve. Senior lenders are secured by collateral of the 66 enterprises, mainstream investors often opt to invest through underlying loans from the FreshWorks Fund. third-party managed funds.

Figure 11: AACF Fund Structure Figure 11: Example of an Asset Owner Organization Structure (Zurich Insurance)

USAID

50% guarantee

Pearl Capital JP Morgan Partners USAID

Debt $8 million senior African Agriculture unsecured debt Capital Fund Technical Assistance Facility Bill & Melinda Gates Foundation

Investee $10 million (PRI) Agricultural Enterprises Gatsby Charitable Foundation Equity $5 million $25 million

The Rockefeller Foundation

$2 million (PRI)

Charting the Course 27 Figure 12: AACF Investment ReviewFigure Process 12: AACF Investment Review Process

Deal 1 Sourcing Due 3 Diligence Investment Social Impact Decision 2 Screening 4

• The investment committee approves • Pearl Capital Partners models or declines the the enterprise’s social impact investment based potential on its potential • The impact committee discusses financial return and the enterprise’s social impact social impact potential with Pearl Capital Partners • The impact committee filters out enterprises that lack sufficient impact potential • Pearl Capital Partners sets the investment’s social impact goals in discussions with the impact committee

Highlighted Challenge 1: Small Average Deal Size

Institutional asset owners sometimes comment that they cannot make impact investments because all impact investments are private equity or debt deals in the US$ 1-10 million range. While those deals certainly do exist, they are not the only game in town. Below are just a handful of examples of larger impact investments available to institutional asset owners targeting market rate returns: • Investing 4 Growth: In May 2013, five local government pension funds in the UK issued a request for proposals under the name of Investing 4 Growth, seeking investments with economic as well as positive social and/or environmental outcomes in the UK. The five pension funds collectively committed £ 250 million. By the closing date in July 2013, 32 RFP submissions were received reflecting investment opportunities across property/infrastructure, energy, venture capital, mid-cap and social enterprises. As of March 2014, the five funds reported that three investable opportunities have been identified and that they are considering a collective investment of over £ 100 million.67 • Obviam: In September 2013 UBS completed raising CHF 50 million from clients for a fund-of-funds vehicle that will take equity stakes in small and medium-sized enterprises (SMEs) in emerging and frontier markets that drive social or environmental change. The Fund will be managed by Obviam who has 14 years of experience making impact investments. 68 • Equilibrium Capital: Equilibrium Capital has approximately $900M across its platform of sustainability-driven real asset investment strategies, funds, and products. Equilibrium’s funds range from $150M-$250M in size, backed by institutional investors such as pension funds, endowments and foundations.69 • Storebrand: Since many pension funds need to deploy capital in investments in the $100 million range and cannot have more than a 10% stake in any fund, a scale challenge remains given that few impact investment funds would qualify under this criterion. Storebrand, a Norwegian pension fund, has a made a commitment to growing impact investing and has relaxed some of the size restrictions to facilitate growth of the sector. Of the approximately US$ 70 billion that Storebrand manages, they currently have a US$ 75 million allocation to impact investments (40% through private equity and 60% through private debt). Through these efforts they are able to support first-time managers and accept higher relative transaction fees based on the belief supporting the sector now can lead to more opportunities in the long-term. In addition to the impact fund investments, Storebrand is a significant investor in green bonds.

28 Charting the Course Investment Strategy – Investment Sourcing

The sourcing of impact investments presents similar challenges as the sourcing of traditional investments. Most notably, while it might not be difficult to find impact investments – indeed, there are many resources for that listed in this report – finding quality investing opportunities can be challenging. Investors are encouraged to survey the universe of investable deals and develop relationships with partners that have shared investing strategies and principles.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Investment: Investment Sourcing

Strategic Goals Tactics Foster partnerships to find Incubate/support Utilize impact investing Partner with peer innovative solutions to invest impact- specialized fund networks (Toniic, organizations to pool and build the market managers Impact Assets) to plug capital toward social into impact investing impact investments deal flow. Networks        can serve as a nexus for the multitude of incubators, accelerators and intermediaries 1 2 3 active in the sector

Tap networks of institutional Evaluate and monitor Identify partners or Utilize specialised peers and local market experts opportunities on social team members with investment advisors venture listing platforms local market experience        to leverage in due diligence and ongoing 4 5 risk management

Explore non-traditional means Utilize crowd-funding of sourcing opportunities outlets to access impact investing to non-   accredited investors or HNW investors looking to make 'smaller-ticket' 6 investments/loans

Spotlight – Incubation Partnerships • Sarona Asset Management: Sarona Asset Management is a  private equity firm that manages investments in frontier and • Leapfrog Investments: Leapfrog Investments invests in emerging markets. Originally a part of Mennonite Economic high-growth companies in Africa and Asia that offer financial Development Associates Inc. (MEDA), a private investment services to consumers in emerging markets. LeapFrog’s company, it was spun off through a management buyout investors include large financial institutions such as JP in 2011 as MEDA evolved into a non-profit international Morgan, Swiss Re, Prudential and TIAA CREF.70 economic development institution. MEDA currently has 10% • Bridges Ventures: Bridges Ventures, a private investment ownership in Sarona Asset Management.75 firm, was founded in 2002 with the support of private equity • Impact Ventures UK (IVUK): LGT Venture Philanthropy (LGT firms Apax Partners, 3i and Doughty Hanson & Co.71 VP) and Berenberg Bank raised € 24.8 million for their social • DBL Investors: In 2008, DBL Investors was spun out of the impact fund, IVUK, in December 2013. IVUK’s investments JPMorgan Bay Area Equity Fund I. DBL Investor’s strategy will focus on the creation of social return for disadvantaged is focused on investing in companies that have the potential communities in the UK as well as financial return. The Fund to deliver top-tier venture capital returns while enabling local builds on LGT VP’s experience in social impact investments social, environmental and economic impacts.72 and Berenberg’s connections to the UK’s social enterprise community.76 • Finance In Motion: Finance in Motion is a leading asset management firm focused on development finance with Resource List – Impact Investing Forums € 1.3 billion committed capital. While Finance in Motion is  majority owned by management and staff, Sal. Oppenheim • Impact Forum (Singapore) (European private bank) and the Apax Foundation (corporate • Investors’ Circle Beyond the Pitch (US) giving arm of global private equity firm Apax Partners) are also shareholders.73 • Sankalp Forum, an Intellecap initiative (India) • MicroVest: MicroVest, a private investment adviser, is • Social Capital Markets (SOCAP) (US) majority owned by non-profit institutions CARE, MEDA and • Put Your Money Where Your Mouth Is Community the Cordes Foundation. MicroVest builds on the combined (PYMWYMIC) (Netherlands). experience of these institutions in international small business • Toniic (Global) development and investing.74

Charting the Course 29  Spotlight – Impact Community Capital • Impact Community Capital is a for-profit corporation founded Highlighted Challenge 2: Lack of track record by leading insurance companies. It focuses on promoting socially responsible investments in underserved communities The lack of a track record to prove the viability of impact specifically though the pooling and securitisation of investing is sometimes mentioned as a reason why mainstream community investment portfolios and the use of federal new investors are reluctant to act. While there are some managers markets tax credits to finance community childcare and with an impact investing track record greater than five years, healthcare facilities. Impact also provides equity funding there are a great many more with a non-impact investing track for workforce and in-fill housing, as well as to grow small record that investors can take into account. In other areas of businesses.77 the impact market – green bonds, housing, microfinance debt, and private equity – a track record is less of an issue because  Resource List – Social Venture Listings investments can be made without use of an intermediary and because we can see notable examples of investment returns • Social Stock Exchange (UK): Platform designed to connect and exits. The following set of exits and fund returns highlights the general public (not just accredited investors) with publicly the potential for impact investments to achieve attractive listed impact investments.78 financial returns. • Impact Exchange (Singapore): Listing of social entrepreneurs, • In October 2013 Bamboo Finance (a commercial private impact investing funds and non-profits (roll-out in process).79 equity firm founded in 2007 with US$ 250 million under • Social Venture Connexion (Canada): Online portal connecting management specializing in investing in business models capital-seeking social entrepreneurs with accredited that benefit low-income communities in low-income investors.80 countries in emerging markets) announced the sale of • Mission Markets (US): Private capital marketplace for US Xac Bank resulting in returns above 25% and two times accredited investors which provide offering documents for its investment. Xac Bank started in 2001 as a non-profit due diligence and deal-closing support through a broker- microfinance lender to Mongolia’s herding community. dealer partner.81 At the time of the sale, it had grown to a fully regulated commercial bank and the fourth largest in Mongolia in  Spotlight – SNS Impact Investing terms of assets. It has 500,000 customers. The sale was made to ORIX, the largest leasing company in Japan, • SNS Impact Investing (SNS) is the impact investing arm of who intends to leverage Xac Bank’s business platform to Dutch bank assurance company SNS REAAL. SNS uses expand within Mongolia and further the development of independent advisers to source investment deals as well as to the country’s financial services industry.83 perform due diligence and write investment proposals. SNS retains responsibility for setting investment policy, evaluating • In December 2013, Leapfrog Investments (an impact investment proposals and making investment decisions. investment firm launched in 2008 with US$ 135 million The process for selecting an investment adviser is similar to under management as of 2013 and targeting to raise a 84 the process used by pension funds, insurance companies second fund of € 300 million) announced the sale of and professional asset managers. The evaluation of advisers Express Life to Prudential PLC. Express Life is a micro- focuses on their track record of returns, their capacity to insurance company based in Ghana, a country where deploy sufficient capital, a solid financial position and the less than 2% of the country’s 25 million people have quality of management. Once the adviser has been selected, access to insurance. While the terms of the deal were an “investment advisory agreement” is agreed to which details not made public, Leapfrog, in part through its approach the conditions the adviser has to meet before and during the to actively work investees, was able to help Express contract period.82 Life post a five times growth in monthly revenues in the first year of the investment. Furthermore, the sale of the  Resource List – Crowd-funding channels: company to a mainstream insurance company speaks to the viability and growth opportunities of the business and • Crowdfunder that exits from impact investment deals are possible.85 • Symbid • Bridges Ventures is a private investment firm founded • VC4Africa in 2002 on principles of pursuing both social and • Myc4 environmental outcomes as well as aiming to achieve financial returns. In March 2013, Bridges exited an • Medstartr investment in Wehlan Refining, which was re-engineered to be the first waste oil refining plant in the UK. The re-engineering helped to divert 100,000 tons of waste oil from being used as low grade fuel and produced a net savings of 300,000 tons greenhouse gas emissions. Since the initial investment in 2006, the exit resulted in a 33% IRR and 4.7 times the total investment.86

30 Charting the Course Investment Strategy – Impact

Mainstream investors should define an impact strategy upfront which reflects the organization’s specific context. Specifically, some investors will have organizational principles or an operating context which guides where and how impact is sought – for example, the private office of a family which has made its fortune in book publishing may focus on making an impact in education. Other types of organizations may be open to making investments which have a wide range of social and environmental impact. Identifying those guidelines upfront will inform the investment vehicles which should be targeted. On an ongoing basis, impact due diligence will need to be performed and actual impact will need to be measured. Guidelines for these processes can also be laid out upfront, but it is likely that they will change as investments are made and monitored.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Investment: Impact

Strategic Goals Tactics Define impact strategy and Review existing Identify any targeted Determine if targeted processes investments to impact areas; Consider impact areas (e.g. determine potential opportunities to invest health access, impact of current with impact goals that education) will guide investments and benefit the core investing activity or if        establish a baseline business impact will be pursued as opportunities are identified; define impact screening and 1 2 due diligence standards

Actively measure and report Utilize a baseline of Obtain independent Regularly assess the social and environmental standardized third-party social and impact performance of impact impact evaluations and environmental impact investments relative to        overlay additional assessments from the impact proprietary metrics specialist third-party targets/objectives specific to the impact service providers 3 strategy and goals

 Spotlight – Investment Opportunities Which Benefit  Spotlight – Standard Chartered Core Business • Standard Chartered has a longstanding presence in Africa, • Allianz: Micro-insurance providing socio-economic progress providing a full suite of banking products and services to and allowing the insuring company to grow customers from SME clients that include payroll, foreign exchange, letters micro to conventional business size (nearly 25 million lives of credit issuing/confirmation, trade finance and loans. A insured in 2013).87 portfolio review of the loan book in eight markets in Africa in May 2014 showed that Standard Chartered is serving • Bradesco: Floating branches reach 250,000 people over 100 social enterprises, which are defined by Standard otherwise without access to banking services. More than Chartered as companies creating jobs and generating 30% of current accounts opened in 2012 were for customers societal benefits. These borrowing and non-borrowing clients with incomes below US$ 500/yr.88 belong to high-impact sectors such as off-grid renewable • Over 70 large banks around the world are members of the energy, agriculture, health, education, water and sanitation, Equator Principles which is a framework for determining, as well as women-owned businesses. This segment of assessing and managing environmental and social risk in Standard Chartered’s client portfolio is a good example of project finance transactions.89 the demand from mature social enterprises for access to commercial debt and working capital in order to finance  Resource List – Impact Investing Metrics and Tools growth. • GIIRS (Global Impact Investing Rating System) • IRIS (Impact Reporting and Investment Standards) • B Impact Assessment

Charting the Course 31 5.3 Roadmap Step 3 – Organization Strategy Pillar number of factors. Even in the earlier stages of impact investing engagement, an organization should consider certain strategies Pursuing an impact investing strategy can require varying degrees and tactics to maximize the chance of future successes and of organizational change depending on impact investing stage. For organizational buy-in. While there is a substantial field of academic example, an organization can evaluate impact investing strategies study and literature on the topic of organizational change, the aim and organizational models with a relatively temporary resource of this report is to provide concise, pragmatic tactics. As such, commitment using existing personnel. Similarly, a set of one-off we have outlined four strategic building blocks of organizational impact investments can likely be piloted without large structural strategy for investors to consider: structure, culture, talent and changes to the organization. However, significant and persistent technology. change within organizations requires careful management of a

Organization Strategy – Structure

An organizational structure that supports impact investing should reflect the organization’s commitment to and its targeted stage of impact investing. For example, in the evaluation and piloting stages, it may be enough to temporarily allocate investment professionals’ time to impact investing activities. However, once an organization is committed to impact investing, a dedicated and formalized structure of impact investing practitioners will likely be necessary.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Organization: Structure

Strategic Goals Tactics Build Organizational Charge select Create a centralized Embed specialists across Capabilities investment personnel team to oversee impact business units or asset with dedicating some investing activity and class teams and provide amount of their time to make impact specialists with central       impact investment investments through executive leadership sourcing and due cooperation with and administrative diligence, in addition to business units, asset oversight existing duties class teams, or portfolio 1 2 managers

Setup Reporting Lines Report to executive Report through Report to chief leading corporate social traditional reporting investment officer, chief       responsibility or lines (e.g. to heads of executive officer, or 1 2 philanthropic activities business units) board of directors

Align with Business Model Managed as component Managed as business Managed as a profit of corporate social development initiative centre, potentially responsibility or with measurable integrated with business        philanthropic activities objectives but no formal unit or asset class P&Ls, financial performance with annual financial 1 2 metrics performance metrics

 Spotlight – Zurich Insurance Group disperse these ideas and approaches. This approach was complemented by an alignment of individual objectives with • Figure 13 represents an approach taken by an asset owner responsible investment targets for both the champions and (Zurich Insurance Group) in which a centralized specialist the rest of the investment management organization. team reports directly to the Chief Investment Officer and liaises with asset class experts as well as “champions”  Spotlight – Morgan Stanley within existing teams. A benefit of this model is that the champions are already integrated parts of existing teams and • Figure 14 represents an approach taken by a financial therefore already have rapport when offering new practices. services provider, Morgan Stanley. Given that many of the Additionally, they have linguistic and technical credibility given financial service provider organizations are large global their core financial skill-set of investment analysis and portfolio institutions with a broad array of business lines, it follows that management. In other words, successful champions have there are a number of different ways for these institutions as their “first language” that of the mainstream investor, and to engage. Morgan Stanley’s approach is a centralized they acquire new expertise through exposure to sustainable/ dedicated team that facilitates activities related to impact responsible and impact investing topics. Developing investing across business lines and with external parties and champions who can effectively can speak both languages stakeholders. The team is empowered by a mandate from takes time and patience, but ultimately they will be well senior leadership to whom they directly report. positioned to educate the rest of their teams and rapidly

32 Charting the Course FigureFigure 13 13: – ExampleExample of anof Assetan Asset Owner Owner Organization Organization Structure (Zurich Structure Insurance Group) (Zurich Insurance)

CIO

Responsible investment team Georgia IESAM Team 1 Champion Administrative AM Team 2 Champion Policiesteams & Other Investment Management Teams management Strategy Implementation Teams Internal asset Procedures AM Team 3 Champion

“Responsible investment champions” serve Asset manager 1 Georgia IES as conduits to communicate strategy to asset management and investment teams, share AdministrativeAsset manager 2 new ideas and feedback with the responsible Policies &

managers investment team. Furthermore they serve as External asset ProceduresAsset manager 3 ambassadors for the overall strategy and field questions from teammates. This structure enhances the overall culture around responsible investment and impact investing by closely aligning with the core business groups. Champions

Denotes formal network, but no formal reporting lines

Figure 14 – Example of a Financial Service Provider Organization Structure Figure 14 – Example of a Financial Services Provider Organization(Morgan Structure Stanley) (Morgan Stanley)

Global Sustainable Wealth Finance Impact Fund Third-Party Management Institutional Team Managers Impact Mainstream Fund Securities Group Investment Investing Managers Management Networks Partners with internal stakeholders to: Engages with external stakeholders to: • Source and vet impact investment • Identify impact fund managers and funds/products to be offered to interested facilitates the relationship with wealth clients. management or asset management • Educate and engage relationship portfolio managers, bankers and portfolio • Work with mainstream fund managers on managers on impact investing. the inclusion of social and environmental • Facilitate employee skill sharing programs. considerations in their funds • Engage to help execute transactions for • Actively engage in market/capacity impact investments including IPOs, building through participation in impact mergers, etc. investing industry networks and associations and through direct pro bono employee skills sharing efforts with NGOs working to build social enterprises

Charting the Course 33 Organization Strategy – Culture

An organization’s culture is driven by values, norms and activities at both the level of the organization and the level of the individual employee. When managing a cultural shift, it’s important to consider drivers of change at both of these levels. Accordingly, maximising an impact investing initiative’s chance of success requires support from not only the organization but also individual employees. For example, it is not enough for leaders to declare that impact investing is a priority and that there will be an organizational unit spearheading an impact investing initiative. Rather, the impact investing vision should be well-defined and well-communicated, there need to be quick and visible wins that show momentum and help build a long-term case and progress must be realized over time.

Two themes commonly emerge among mainstream investors regarding the cultural changes that need to occur for impact investing to take hold. The first theme is that organizational values need to shift and be more focused on impact. The second theme is that individual perceptions about impact investing need to change. Some mainstream investors might recognize that within their organizations, inaccurate beliefs are held about the term “impact investing” – that it implies philanthropic activities and below-market returns. Clearly, as this report and others have discussed, there is a subset of impact investing that fits that description but we can also find numerous impact investments which are compelling on financial merits alone. Overcoming this bias will require new information to be presented. Such information may come in the form of the aforementioned industry reports or, more likely to change minds, in the form of the organization’s findings after evaluating or piloting impact investing approaches.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Organization: Culture

Strategic Goals Tactics Communicate the Engage Provide a simple Regularly commitment of employees of and communicate on senior leadership different understandable the progress of and the seniority levels explanation of the impact organization’s when shaping the investing strategy motivation for and advancing organization’s Communicate Vision and        pursuing impact the impact impact investing Commitment investing; conduct investing strategy strategy and senior leadership – these market goals “roadshows” employees can later act as agents of change within the 1 organization

Utilize the relevant Focus on what Celebrate and Empower and dimensions of the can be achieved showcase encourage organization’s using existing successes and employees to culture (e.g. expertise – explore identify and market-leadership, leverage and opportunities to propose Motivate Employees        innovative spirit, share in-house replicate opportunities to positive impact) knowledge successes in engage in impact other areas of investing the business or portfolio

Host webinars or in- Bring in speakers Sponsor person roundtable with experience interested discussions on the in impact employees to organization’s investing attend impact Provide Opportunities for        impact investing investing Education and Dialogue activities – give conferences and employees the external events chance to ask questions

Publicly signal Issue external Regularly report intent to the press releases on impact Build Internal and External        market, clients, reporting on investing Accountability and/or progress and initiatives and 2 shareholders upcoming plans activities

34 Charting the Course  Spotlight – Morgan Stanley and Zurich Insurance Group • “We aim to create sustainable value for our customers, our people, our shareholders and our communities. We • “The world’s population in 1950 was 2.5 billion. Today it is 7 make a contribution to society through our core business billion. By the middle of this century it is projected to be more of insurance, but we want to go further and that is why than 9 billion. This dramatically more populous world will, corporate responsibility is a key ingredient of our business we believe, require tens of trillions of dollars of investment strategy.” – Martin Senn, CEO of Zurich Insurance Group. to ensure secure and lasting supplies of food, water, energy and shelter for everyone—not to mention vital services like  Spotlight – Huntington Capital healthcare, transport and education. Failure to meet these challenges may threaten global prosperity and force painful • Huntington Capital is a mezzanine fund providing debt trade-offs between economic growth, human development, and equity financing to established, small and medium public health and ecological security. For us at Morgan sized companies in the Southwestern United States. They Stanley, it is abundantly clear that the solutions to these produce an annual “Impact Report” which includes such challenges can only achieve the required scale if they can details as the number of new jobs created by portfolio attract a critical mass of private capital. To this end, we’ve companies, the total number of workers employed, as well established the Morgan Stanley Institute for Sustainable as income and demographic characteristics of portfolio Investing to lead work across our firm, with our clients company employees. In addition, Huntington provides case studies on the impact created through specific portfolio and with academic institutions to help mobilize capital to 90,91 sustainable enterprises, via global markets and the investors companies. who drive them.” – James P. Gorman, Chairman and CEO of Morgan Stanley.

Charting the Course 35 Organization Strategy – Talent

Impact investing requires skill sets and knowledge that traditional asset/fund managers and client-facing investment professionals may not currently possess. On the asset/fund manager side, such skills include the performance of impact due diligence and the ongoing monitoring of impact. And client-facing investment professionals need to be able to accurately represent the impact characteristics of investments – a new language for some. Organizations can leverage external resources, including impact investing conferences and events, to help employees learn these new skills. Additionally, they can recruit externally from a large and growing pool of interested experienced professionals and students.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Organization: Talent

Strategic Goals Tactics Develop Impact Investing Define skills Leverage Sponsor Offer Skills of Asset/Fund necessary to university interested externships/ Managers conduct impact due curricula and employees to sabbaticals which diligence and guest speakers to attend impact allow employees        monitor ongoing conduct impact investing to work with impact investing training conferences, social modules external events, entrepreneurs or and executive market-building 1 2 education classes organizations

Develop Knowledge and Define knowledge Develop internal Leverage Sponsor Skills of Investment Advisors and experience impact investing university interested and Client-Facing required to “guide” for curricula and employees to Investment Professionals     effectively client/investor guest speakers to attend impact represent impact interactions conduct impact investing investments to investing training conferences and 2 clients/investors modules external events

Recruit Experienced Talent Highlight Engage students Develop impact Create and organization’s through investing-focused formalize impact commitment to undergraduate internship or add investing career impact investing in and graduate impact investing path within recruiting process; impact investing programming to organization        establish a regular initiatives and traditional presence at social impact internships (e.g. external impact organizations learning series) investing conferences and 3 events

Incorporate Non-Financial Establish Incorporate Evaluate social Performance Metrics organization-level social and and social and environmental environmental        environmental impact targets in impact targets in impact targets and employee goal annual employee measure success setting processes performance 4 against goals reviews

Spotlight – Columbia Business School aspects of aligning a portfolio with an institution’s mission  across all asset classes, the state of the impact investing • Columbia Business School offers an impact investing course industry, the investment process, how to conform to fiduciary that focuses on 1) equity, debt and alternative investment responsibilities and various impact investing opportunities.”93 structuring for early- through late-stage social ventures; 2) assessment of impact and financial value for companies and  Spotlight – Morgan Stanley Sustainable Investing investment portfolios; 3) legal and governance strategies to Challenge preserve mission-focus throughout organizational scale; and 94 4) role of investment funds and philanthropy in building the • The Morgan Stanley Sustainable Investing Challenge is impact investing marketplace.92 a partnership between The Morgan Stanley Institute for Sustainable Investing, the Kellogg School of Management Spotlight – CFA Institute at Northwestern University and INSEAD. MBA contestants  must propose and defend a strategy that uses finance and • The CFA institute hosted four impact investing events in investment tools to address an environmental or societal 2013. A panel discussion at one of the events covered “the challenge. Teams get matched with mentors who are

36 Charting the Course experienced financial professionals and finalist teams receive measures of impact into its compensation structure. priority consideration for impact investing internships at select Specifically, the fund sets development targets based on the partner organizations. percentage of BoP clients served by portfolio companies. For example, one such target might be that 50% of people served  Spotlight – Aureos Capital’s Africa Health Fund have an average annual household income of less than • The Africa Health Fund has total commitments of US$ 105 $3,000 (adjusted to equalize differences in the purchasing million and invests across Africa in healthcare enterprises power of local currencies). A General Partner’s base carry is serving populations at the base of the socio-economic then dependent on achieving expected a financial hurdle but pyramid (BoP). It is one of 17 funds managed by Aureos can be adjusted upwards based on the achievement of one 95 Capital, a US $ 1.3 billion specialist private equity firm that or more of the fund’s impact targets. focuses on providing capital to small- and medium-sized businesses in emerging markets. The fund integrates

Organization Strategy – Technology

As is the case with many business and investing activities, a growing universe of specialized technology tools has sprung up to support impact investing. Such tools include web-based analytics engines and platforms which allow collaboration and house details on investable deals. Additionally, some organizations such as UBS are internally developing tools to accommodate new client demand for sustainable and responsible investing.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Organization: Technology

Strategic Goals Tactics Utilize Client-/Investor- Develop tools which Offer clients/investors a Facing Tools allow clients/investors tool which provides     to express impact impact information on 1 preferences investments

Access and maintain data on Incorporate ESG data Internally develop or Maintain social and social and environmental sources in due diligence contract with service environmental impact indicators to facilitate screening providers to build data on investments        for impact investments analytical models which capture and evaluate 2 non-financial criteria

Spotlight – UBS Sustainability Health Check (e.g. fund manager’s contribution, investee firm’s output and  local investment context).98 • UBS developed a tool that allows its wealth management clients to identify discrepancies between their sustainability • Mission Markets: A financial technology firm that helps preferences and the composition of their portfolios.96 While institutional, advised and self-directed investors to make not specific to impact investing, this is an example of a wealth impact investments. The platform supports a range of management tool that provides clarity on client preferences financial products, including direct private placements, impact and that can start client conversations about the non-financial funds and structured debt securities. It also supports a broad impact of investments. repository of articles, research, data, blogs, forums and media that provide information about impact investing.99  Resource List – Technology to Support Impact Investing • Vera Solutions: Salesforce.com-based service provider that • B Analytics: Web-based tool offered by B Lab which allows will set up a data system to track and maintain social impact 100 users to research 1,400+ companies and funds, access data. proprietary impact investing market trend reports, utilize tools • Maximpact: A funding and collaboration platform that links to collect impact data on companies/funds and benchmark funders with sustainable profit and non-profit initiatives and impact against a global database of private companies.97 projects seeking investment and other types of collaboration. • Intellecap PRISM (Portfolio Risk, Impact and Sustainability The platform covers projects on sustainable development, 101 Measurement): Web-based impact fund performance clean technologies and green investment. measurement framework capturing dimensions of impact

Charting the Course 37 5.4 Roadmap Step 3 – Ecosystem Strategy Pillar impact investments to gain knowledge and build an informed perspective on the impact investing market. The four tactical maps The ecosystem strategy pillar of the Impact Investing Roadmap in this section are: networks, partnerships, academia and technical lays out some important constituencies committed to the success assistance. As in prior sections, each tactical map highlights of impact investing and demonstrates how investors can both gain specific options and the mainstream investor groups to which each and share expertise. Actively engaging with the impact investing option is most pertinent. ecosystem can help investors who are evaluating and piloting

Ecosystem Engagement – Networks

Impact investing networks contain a wealth of practical knowledge and experience – a valuable resource for mainstream investors who are interested in learning more about impact investing. In part because of impact investing’s potential for positive change as well as its pioneering and evolving nature, there are groups of passionate professionals who are working to develop and build the sector. Many of these professionals regularly meet at conferences and events and are willing to share their experiences.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Ecosystem: Networks

Strategic Goals Tactics Join impact investing Subscribe to email Attend Contribute to Sponsor networks and organizations listservs and follow conferences, thought leadership organizations Twitter feeds to meetings, and by sharing and drive        stay abreast of events to build experiences and impact developments in knowledge participating in investing impact investing market building thought 1 initiatives leadership

Convene peer groups to Participate in peer Organize and lead share knowledge and knowledge-sharing peer knowledge experience in impact opportunities sharing events to investing        drive industry engagement and identify best 2 practices

Participate in impact Attend events and Team with other investing forums and events, network with other family offices specific to mainstream family offices collectively investor type engaged or looking seeking to engage        to engage in impact in impact investing investing and signal demand to advisors and product 3 developers

Engage specialized Initiate high-level Issue RFPs to Hire advisors/ consultants/advisors with discussions on consultants/adviso consultants to impact investing knowledge impact investing rs to determine assist in the build- and experience        strategies and best- relevant impact out of an impact practices investing investing knowledge and capability 4 experience

38 Charting the Course  Resource List – Impact Investing Networks  Resource List – Investor Type-Specific Networks • Global Impact Investing Network (GIIN)102 • Family Office Exchange: Launched in 1989 as a peer • Investors Circle: An early-stage impact investing network of network for families seeking objective financial education on angels, venture capitalists, foundations and family offices. The passing wealth successfully to future generations. Currently network has channelled US$ 172 million and US$ 4 billion in a global community of wealthy families and advisers pursuing 109 follow-on investment into 271 impact enterprises.103 best practices in wealth management. • Impact Assets: A 501(c)3 organization seeking to catalyse • Americas Family Office Forum: An annual convening to the impact investing ecosystem by providing products gather family offices and HNWIs to network, problem solve and thought leadership that enables philanthropists, other and exchange ideas on family governance, asset allocation 110 asset owners and their wealth advisers to make impact and wealth management best practices. investments.104 • European Family Office & Private Wealth Management Forum: • South African Network for Impact Investing105 An annual conference that explores the challenges and opportunities associated with investing in emerging markets, • European Impact Investing Luxembourg (EIIL): Members alternative investments, real estate, direct energy and include ADA-Microfinance, Arendt & Medernach, Banque numerous other asset classes as well as taxes, regulation, de Luxembourg, Deloitte, Elvinger, Hoss & Prussen, Ernest asset protection, philanthropy and structuring a family & Young, European Fund Administration, Innpact, KPMG, office.111 Luxembourg Microfinance & Development Fund, European Investment Fund and PwC.106 • European Network of Family Offices: A network of family offices seeking to share experiences, information, challenges, • Toniic: A global network of action-oriented impact investors, best practices and to promote relationships with similar both individuals and institutions with members in over 20 networks in other countries.112 countries.107  Resource List – Specialized Consultants/Advisers  Spotlight – Calpers, ESG Peer Exchange • Family Office Metrics: Consultancy that assists in managing, • In 2011 Calpers convened a group of 11 of the world’s largest creating and enhancing family offices.113 asset owners with collective assets of US$ 1.5 trillion to share their experiences in the ESG field. The convening included • Family Office Exchange Consulting: Assisting families and funds from the UK, Netherlands, South Africa, Australia, family offices to develop a strategic family office business 114 Brazil, Norway, Canada and the US.108 plan.

Charting the Course 39 Ecosystem Engagement – Partnerships

Some mainstream investors may find allocating resources to a new impact investing initiative difficult, especially before an internal business case for impact investing has been made. In such an instance, strategic partnerships present a means of accessing external support. Additionally, partnerships present an opportunity to engage in market-building efforts which grow the universe of viable impact investing opportunities.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Ecosystem: Partnerships

Strategic Goals Tactics Partner with impact investors Survey client/investor Partner with a range of After launching in- to raise capital for a third-party demand for impact impact investors with house impact investing impact investment vehicle investments; impact-focused vehicles product, partner with identify potential and offer to other investors to raise partners with impact- clients/investors capital   focused investment vehicles; conduct due diligence and make available to clients/investors (e.g. 1 testing client interest)

Partner with specialized impact Develop relationships Provide support of an Create a company or investors to propagate best with impact investing impact investing initiative to meet an practices organizations to share organization or social impact investing market        market perspectives enterprise, contributing need (e.g. social impact and discuss investing to the successful insurance, services for approaches development of the under-served 2 3 4 market entrepreneurs)

Leverage public-sector support Identify areas where Identify government and actively partner with existing impact initiatives/priorities government agencies and investments might which could potentially initiatives        present opportunities to provide support to engage with partially fund or policy-makers partially de-risk impact 5 6 investments

Partner with non-profits and Provide financial NGOs to support sector- support and technical building efforts expertise to NGOs        which are helping to catalyze social and environmental 7 8 9 outcomes

40 Charting the Course  Spotlight – Calvert Foundation  Spotlight – Huntington Capital • In 1998, Calvert Foundation began creating capital-raising • Huntington Capital, a mezzanine debt fund located in partnerships for a fixed income vehicle that provides debt to San Diego, California, was registered as a Small Business community development organizations. Partners took the Investment Company (SBIC) under a Small Business lead on marketing and introducing the investment opportunity Administration (SBA) programme. This provided their first fund to their networks, while leveraging Calvert Foundation’s with leverage from the SBA at a ratio of 2:1 to private investor administrative, legal, regulatory and distribution systems. capital. Huntington’s second fund is not an SBIC, but some This arrangement allowed organizations to test the water on of its institutional limited partners are investing as a result of retail capital raising and for investors to get comfortable with the Community Reinvestment Act mandate at the federal Calvert’s partner organizations without partners needing to level and a similar mandate in California which places similar create a new investment product. Calvert Foundation’s first requirements on insurance companies.121 such partnership was with Oikocredit, a worldwide financial cooperative that promotes global justice by empowering  Spotlight – Standard Chartered disadvantaged people with credit. That programme has • Standard Chartered has been a full service banking partner raised over US$ 10 million to support their portfolio and led to MFIs for years. Since 2005, the Bank has grown its MFI them to create their own investment products once they business to surpass US$ 1.2 billion in lending to 79 MFIs realized the opportunity. Note programmes have also been across 18 countries, impacting an estimated 8.3 million created for other organizations such as Habitat for Humanity people. In 2013, Standard Chartered signed a five-year 115 and VisionFund International. Asia-wide microfinance risk participation programme with the Asian Development Bank (ADB). The ADB will provide  Spotlight – Community Investment Partners risk coverage of up to US$ 75 million. By providing US$ 150 • To help build needed impact investing infrastructure, Calvert million in loans to MFIs, the programme will benefit around 20 Foundation began a fee-for-service programme called MFIs and more than one million people across Asian markets Community Investment Partners in 1999 to provide due over the next five years. This partnership is expected to diligence, asset management, investor administration and unlock additional funding to MFIs and extend support to the other consulting services. It helped dozens of investors sector as it emerges from a difficult economic cycle. design their impact and programme related investment programmes, provided due diligence to industry players  Spotlight – Credit Suisse and helped more than a dozen non-profits create their • Since 2008, Credit Suisse has partnered with Accion (a global own investment products. In 2010, these services became non-profit focused on creating economic opportunities by formalized in a wholly-owned subsidiary and registered connecting people to the financial tools required to improve investment adviser, Community Investment Partners. The their lives). Accion aims to establish new training and capacity current focus is on managing impact investment portfolios building programmes in Bangalore and Beijing and support for institutional investors, including the Communities at Work similar efforts in Africa and in Latin America. The initiatives Fund, a US$ 100+ million small business jobs fund with provide a variety of skill building training programmes for 116 Citi. front-line, mid and senior-level managers of Accion’s partner MFIs.122  Spotlight – Goldman Sachs • In March 2014, the Goldman Sachs Foundation partnered  Spotlight – Zurich Insurance Group with the IFC to create the ‘10,000 Women’ initiative to • In 2013 Zurich Insurance Group and PSI (Population Services increase access to capital for women entrepreneurs. Through International), a global health organization, joined forces to the partnership, the initiative will work with local banks in facilitate more frequent and meaningful engagement between emerging markets to catalyse existing capital for women- NGOs and impact investors via investments of private investor owned SMEs by addressing barriers in the lending market. capital. PSI was interested in how new capital sources could The Goldman Sachs Foundation will provide a US$ 32 help NGOs scale up activities and become more flexible, million anchor investment in order to encourage capital from but acknowledged that many NGOs lack experience in 117 commercial investors and bi-lateral donors. using private capital. Zurich felt that institutional investors struggle with how to interact with non-profits—the experts in  Spotlight – HUGInsure creating impact—while NGOs’ expertise and infrastructure • Dalberg and Hollard Insurance commit to creating HUGInsure, potentially represented valuable assets. Together Zurich and the world’s first social impact insurance entity. This initiative is PSI developed a framework to help NGOs and investors in association with Aon and the Lloyd’s market. It will create speak a common language and better understand various a risk assessment entity that will measure and manage risks financial models through which they can engage with each associated with the funding of social impact organizations. other.123 Over the course of the collaboration a shared vision It will apply rating methodologies and risk management developed around expanding the universe of possible impact principles to facilitate the underwriting of social impact investments and Zurich and PSI are now exploring one of funding.118 the financial models outlined in the framework in a practical context.  Spotlight – Deutsche Bank’s Microfinance Consortium I • Deutsche Bank’s Microfinance Consortium I was formed to lend to microfinance institutions (MFIs) at commercial lending rates. It received a US$ 1 million grant from the Department for International Development (DFID) in the UK and a US$ 15 million guarantee from the US Agency for International Development (USAID) in the US. The Consortium ended up raising over US$ 80 million from a group that included commercial investors.119,120

Charting the Course 41 Ecosystem Engagement – Academia

The academic world is answering a strong demand by students, alumni and industry for impact investing programming. This activity is seen most strongly in graduate and undergraduate business schools, public policy schools and cross-disciplinary initiatives at universities. For mainstream investors interested in impact investing, these institutions can be connection points for talent-recruitment, networking and knowledge-sharing.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Ecosystem: Academia

Strategic Goals Tactics Utilize in-class academic Work with impact Send employees to resources investing executive education in initiatives/professors to impact investing        help formulate practical academic content; be a 1 2 guest lecturer

Contribute to and draw on Engage in and support Propose and contribute Propose and contribute social impact research academic research to impact investing case to impact investing        efforts to build the studies feasibility studies and impact investing market assessments 3 4 knowledge base

Utilize student assistance by Work with impact Develop impact Participate in impact facilitating opportunities for investing initiatives to investing-focused investing competitions hands-on experience        formulate student internships; sponsor (e.g. through project opportunities at impact investing sponsorship, judging, or 5 6 your organization scholarships mentorship)

Provide support to interested Sponsor impact Interact with students students investing events, join out of the classroom        panel discussions at (e.g. coffee chats, conferences, and build formal mentorship) 7 an on-campus presence

42 Charting the Course  Spotlight – Curriculum at Duke University’s Fuqua School  Spotlight – Case Studies and Feasibility Studies at Bertha of Business Centre for Social Innovation and Entrepreneurship at the • Many schools have developed impact investing curricula. University of Cape Town, South Africa For example, The Center for the Advancement of Social • Bertha Centre for Social Innovation and Entrepreneurship at Entrepreneurship (CASE) at Duke University’s Fuqua School the University of Cape Town, South Africa recognizes its role of Business has developed a curriculum for impact investing as a local knowledge source. These efforts include a project concentrating on two strategies, referred to as “broad” to compile impact investment case studies designed for use and “deep”. For the broad student body, the goal is to in classrooms internationally. The Centre is also working on a introduce the emerging field of impact investing into required feasibility study for a financing product that would incentivize coursework, so that every Fuqua MBA would be exposed to the creation of community-based solar projects.127 impact investing. All new MBA students prepare an impact investing case at the beginning of the core curriculum, and  Spotlight – Hands-on Experience at the University of CASE information session, workshops and speakers’ series Pennsylvania’s Wharton School of Business are open to all MBAs. For students highly interested and • Student led investment programmes such as the Wharton committed to going deep, the goal is to prepare leaders Social Venture Fund provide opportunities for students to be who can help build the field of impact investing. Through early-stage investors by participating in the various phases of coursework, students also have the opportunity to build the investment process including fund raising, deal sourcing relevant skills (such as designing debt and equity impact and operational and financial due diligence.128 investment funds, conducting due diligence, structuring investments, defining investment theses of change and  Spotlight – Hands-on Experience through the Morgan assessing impact), so that once students follow the course Stanley Sustainable Investing Challenge sequence, they can apply those skills in the broader array of 129 extra-curricular programmes.124 • The Morgan Stanley Sustainable Investing Challenge is a partnership between The Morgan Stanley Institute for  Spotlight – Executive Education at Columbia University’s Sustainable Investing, the Kellogg School of Management Columbia Business School at Northwestern University and INSEAD. MBA contestants must propose and defend a strategy that uses finance and • Some schools offer impact investing-specific executive investment tools to address an environmental or societal education courses. For example, Columbia Business School challenge. at Columbia University offers executive MBA students a course which covers key finance techniques, funds,  Spotlight – Impact Investing Conference at INSEAD infrastructure and market-level issues and opportunities.125 • Many schools are convening regular impact investing  Spotlight – Research and Data at Duke University’s Fuqua conferences that draw industry professionals, students and School of Business academics. For example, INSEAD hosted “Impact Investing: Creating an Industry from Innovations” in May 2013 on its • The Center for the Advancement of Social Entrepreneurship Fontainebleau campus and brought together more than 200 (CASE) at Duke University’s Fuqua School of Business was leading practitioners, academics and students focusing on founded in 2001 and places a strong focus on researching the field. In addition to the presentation of new research and points of confusion, questions and areas where patterns lively discussions on recent developments, the conference seem to be emerging but are not yet clear within impact created a platform for networking and sharing innovations investing and on creating analytical frameworks that can be among practitioners. Videos of all discussions and a tested and shared with others. For example, CASE’s research conference report written by MBA student reporters allowed on high-performing investment funds will have resulted in for accessible knowledge transfer following the event.130 three reports, 12 case studies and two books by October 2014. Additionally, CASE has helped build a database of over 8000 impact enterprises.126

Charting the Course 43 Ecosystem Engagement – Technical Assistance

Of course, the impact investing ecosystem is not just a resource to be drawn upon. The success of the impact investing sector is and will continue to be driven in part by stakeholders who identify gaps in the market or ecosystem and provide technical assistance. This assistance can range from supporting a social enterprise or project to preparing it for investment, to providing expertise to a market- building organization by sitting on the board, to starting conversations on impact investing within traditional trade organizations. All of these activities help to drive the impact investing ecosystem forward and by doing so create benefits for investors and for society.

Figure 10: The Impact Investing Roadmap

INVESTMENT STRATEGY

ORGANIZATION STRATEGY

ECOSYSTEM STRATEGY Ecosystem: Technical Assistance

Strategic Goals Tactics Provide assistance to impactful Create employee Offer secondments Develop an initiative or projects / social enterprises volunteer programmes through which highly tool which meets a which provide internal skilled practitioners can impact investing market        expertise and temporarily be assigned need capabilities to impactful to work for an impactful 1 2 3 businesses/projects business/project

Provide assistance to non- Leverage senior Sponsor “endowed” Serve on the board of profits and sector-building executive experience to positions enabling non- an organization focused organizations guide and develop profits and sector- on impact investing        organizations focused building organizations sector growth on expanding the social to attract highly skilled impact investment talent with competitive market compensation

Push a dialogue on impact Publish impact investing Propose and sponsor investing within mainstream case studies and impact investing industry circles        learnings discussions and panel discussions at industry trade conferences

 Spotlight – Deutsche Bank Corporate Community  Spotlight – Blackstone Entrepreneurs Network Partnership • The Blackstone Entrepreneurs Network recruits a team • Launched in 2008, Deutsche Bank’s Corporate Community of veteran “master entrepreneurs” to identify marketable Partnership (CCP) programme, dispatches experts to non- innovations and start-ups in struggling geographies with profit organizations in emerging markets to help establish potential to become high-growth companies and provides social and economic structures. In the course of a several- them with consultative support.132 week stay, employees assist educational institutions, microfinance banks and social businesses in concrete  Spotlight – RBS projects. The programme has assisted more than 40 projects • RBS created a social enterprise index (SE100) which tracks 131 in emerging markets. the social and financial performance of social enterprises in the UK. The index currently consists of more than 1,000 organizations.133

44 Charting the Course 6. Conclusion

As this report has discussed, there are a range of imperatives investments as well as on the correlation between impact and long- which support impact investing as a viable and forward-looking term value. A more sophisticated and mature investing market will investment strategy for mainstream investors. These imperatives emerge through the work of incubators, accelerators, universities, include but are not limited to the growing client interest in impactful public-private cooperation, as well as partnerships between destinations for capital and the search by asset managers for mainstream investors and impact investors. When that future investments that mitigate long-term environmental and socio- comes, investors who have taken the time and effort to chart their political risks. Additionally, investment institutions are exploring own course into impact investing with the investment strategies, how impact investing can increase employee and client retention organizational capabilities and ecosystem engagement most as well as align an organization’s values with the its strategy and appropriate to their institution will have a competitive advantage in operations. the market.

The actions of pioneering investors have laid the foundation for The World Economic Forum hopes that reports such as this one impact investing to enter the mainstream. Over the coming years, demonstrate that there are pragmatic yet visionary approaches the challenges facing the impact investing sector will evolve as businesses can take to improve the state of the world. more players enter the market and the sector grows. Better data will be available on the risk and return characteristics of impact

Charting the Course 45 Endnotes

1 Readers interested in further details from the September 2013 publication: Margins to Mainstream: Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors; are encouraged to download the full report: http://www.weforum.org/reports/margins-mainstream-assessment-impact- investment-sector-and-opportunities-engage-mainstream-i. 2 “Summary of Impact Investing Sessions at the World Economic Forum Annual Meeting 2012”. World Economic Forum, http://www.weforum.org/content/ pages/mainstreaming-impact-investing-2012, 2012. 3 “Summary of Impact Investing Sessions at the World Economic Forum Annual Meeting 2013”. World Economic Forum, http://www.weforum.org/content/pages/mainstreaming-impact-investing-2013, 2013. 4 “Summary of Impact Investing Sessions at the World Economic Forum Annual Meeting 2014”. World Economic Forum, http://www.weforum.org/content/pages/mainstreaming-impact-investing, 2014. 5 “From Ideas to Practice, Pilots to Strategy: Practical Solutions on How to Do Impact Investing”. World Economic Forum, http://www.weforum.org/reports/ideas-practice-pilots-strategy-practical-solutions-and-actionable-insights-how-do-impact-inv, 2013. 6 “From Ideas to Practice, Pilots to Strategy (Second Edition): Practical Solutions and Actionable Insights on How to do Impact Investing”. World Economic Forum, http://reports.weforum.org/impact-investing-from-ideas-to-practice-pilots-to-strategy-ii, 2014. 7 To learn more, visit: http://www.occ.gov/publications/publications-by-type/other-publications-reports/cdi-newsletter/august-2012/ healthy-foods-ezine-article-4-ncbci.html#loan. 8 To learn more, visit: http://www.threadneedle.co.uk/en/Intermediary/Funds/Funds-and-Prices/Prices-Data/OEICs/Retail-(Net)/Fixed-Income/UK-Social-Bond-Fund/. 9 To learn more, visit: http://www.michigan.gov/mshda/0,4641,7-141--21934--,00.html. 10 Schwartz, J. “Envisioning Profit in Environmental Good Works”, The New York Times, http://www.nytimes.com/2014/07/13/us/equity-firm-restores-louisiana-marshland-to-earn-credits-it-can-sell.html?_r=0, 2014. 11 “World Bank Launches First Kangaroo Green Bond”. The World Bank, http://treasury.worldbank.org/cmd/htm/AUD300Million_First_Kangaroo_Green_Bond.html, 2014. 12  To find out more, visit: http://treasury.worldbank.org/cmd/htm/WorldBankGreenBonds.html 13 Lester, J. “Toyota Issues Green Bonds to Drive Efficient Vehicles”. CleanTechnia, http://cleantechnica.com/2014/05/03/toyota-issues-demand-green-bonds-drive-efficient-vehicles/, 2014. 14 Daneshkhu, S., Bolger, A. “Unilever issues £250m green bond, Financial Times”. Financial Times, http://www.ft.com/intl/cms/s/0/b3ea447a-af59-11e3-9cd1-00144feab7de.html#axzz38t56WUJv, 2014. 15 “Fact Sheet: The Utah High Quality Preschool Program”. Goldman Sachs, http://www.goldmansachs.com/what-we-do/ investing-and-lending/urban-investments/case-studies/impact-bond-slc-multimedia/fact-sheet-pdf.pdf, 2012. 16 “Investing for Impact: Case Studies Across Asset Classes”. The Parthenon Group, Bridges Ventures, http://www.parthenon.com/ThoughtLeadership/InvestingforImpactCaseStudiesAcrossAssetClasses, 2010. 17 “We need a bigger boat: Sustainability in investment”. Towers Watson, http://www.towerswatson.com/en/Insights/IC-Types/Survey-Research-Results/2012/09/Sustainable-investing-we-need-a-bigger-boat, 2012. 18 Eccles, R., Ioannou, I., Serafeim, G. “The Impact of Corporate Sustainability on Organizational Processes and Performance”. Management Science, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1964011, 2011. 19 “Sustainability goes mainstream: Insights into investor views”. PwC, http://www.pwc.com/us/en/pwc-investor-resource-institute/publications/sustainability-goes-mainstream-investor-views.jhtml, 2014. 20 To learn more, visit: HIP Investor Inc., www.HIPinvestor.com 21 “Sustainable Investing: Establishing Long-Term Value and Performance”. Deutsche Bank Climate Change Advisors, http://www.corporate-engagement.com/files/file/DEUTSCHE_BANK_META_STUDY_2012.pdf, 2012. 22 “2012 Report on Sustainable and Responsible Investing Trends in the United States”. US SIF Foundation, http://www.ussif.org/content.asp?contentid=82, 2012. 23 “European SRI Study 2012”. Eurosif, http://www.eurosif.org/publication/european-sri-study-2012/, 2012. 24 “Global Sustainable Investment Review 2012”, http://www.gsi-alliance.org/resources/, 2013. 25 Six Principles of UN PRI: 1. We will incorporate ESG issues into investment analysis and decision-making processes, 2. We will be active owners and incorporate ESG issues into our ownership policies and practices, 3. We will seek appropriate disclosure on ESG issues by the entities in which we invest, 4. We will promote acceptance and implementation of the Principles within the investment industry, 5. We will work together to enhance our effectiveness in implementing the Principles, 6. We will each report on our activities and progress towards implementing the Principles. For further reading on UN PRI, please see: http://www.unpri.org/ 26 “Global Sustainable Investment Review 2012”, http://www.gsi-alliance.org/resources/, 2013. 27 Saltuk, Y., El Idrissi, A., Bouri, Amit., Mudalair, A., Schiff, Hannah. “Spotlight on the Market: The Impact Investor Survey”. J.P. Morgan and GIIN, http://www.thegiin.org/cgi-bin/iowa/resources/research/594.html, 2014. 28 To learn more, visit: http://www.effectpartners.com/onelifetour/the-lohas-market/. 29 “Big demands and high expectations: The Deloitte Millennial Survey”. Deloitte, http://www2.deloitte.com/global/en/pages/about-deloitte/articles/2014-millennial-survey-positive-impact.html, 2014. 30 “Winning the $30 trillion decathlon: Going for gold in emerging markets”. McKinsey Quarterly, http://www.mckinsey.com/insights/strategy/winning_the_30_trillion_decathlon_going_for_gold_in_emerging_markets, 2012. 31 “Urban world: Cities and the rise of the consuming class, McKinsey Global Institute”. McKinsey Quarterly, http://www.mckinsey.com/insights/urbanization/urban_world_cities_and_the_rise_of_the_consuming_class, 2012. 32 Deloitte calculation based on “World Economic Outlook Database”. International Monetary Fund, http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx, 2013. 33 “World Economic Outlook Update: Is the Tide Rising?” International Monetary Fund, http://www.imf.org/external/pubs/ft/weo/2014/update/01/, 2013. 34 “World Water Day: UN Stresses Water and Energy Issues; Tokyo Leads Public Celebrations Around the World”. UN Water, http://www.unwater.org/fileadmin/user_upload/worldwaterday2014/documents/press_release_wwd2014.pdf, 2014. 35 “Global Risks 2012, Ninth Edition”. World Economic Forum, http://www.weforum.org/reports/global-risks-2014-report, 2014. 36 “Big demands and high expectations: The Deloitte Millennial Survey”. Deloitte, http://www2.deloitte.com/global/en/pages/about-deloitte/articles/2014-millennial-survey-positive-impact.html, 2014.

46 Charting the Course 37 “Global Risks 2012, Ninth Edition”. World Economic Forum, http://www.weforum.org/reports/global-risks-2014-report, 2014. 38  Gompers, P. The Rise and Fall of Venture Capital. In Business and Economic History, 1994, 23:1–24. 39 To learn more, visit: http://www.bigsocietycapital.com/about-big-society-capital. 40 “Our strategy for the next three years”. Big Society Capital, http://www.bigsocietycapital.com/sites/default/files/Strategy%20v5.pdf, 2014. 41 To learn more, visit: http://www.seedrs.com/seis_eis_tax_relief. 42 “Handbook on Corporate Social Responsibility in India”. PwC, http://www.pwc.in/en_IN/in/assets/pdfs/publications/2013/handbook-on-corporate-social-responsibility-in-india.pdf, 2013. 43 Thorley, B., Wood, D., Grace, K. “Impact Investing: A Framework for Policy Design and Analysis – Case Study 12: Priority Sector Lending”. Pacific Community Ventures, http://www.pacificcommunityventures.org/reports-and-publications/impact-investing-a-framework-for-policy-design-and-analysis/, 2011. 44 “Financial Revolution? Yes we can”. Stanford Social Innovation Review, http://www.ssireview.org/blog/entry/financial_revolution_yes_we_can, 2013. 45 Auguste, B., Kalil, T., Greenblatt, J. “Background on the White House Roundtable on Impact Investing: Executive Actions to Accelerate Impact Investing to Tackle National and Global Challenges”. Office of Science and Technology Policy, http://www.whitehouse.gov/sites/default/files/microsites/ostp/background_on_wh_rountable_on_impact_investing.pdf, 2014. 46 To learn more, visit: http://www.sba.gov/content/what-impact-investment. 47 To learn more, visit: http://www.watershedcapital.com/events/past-events/. 48 To learn more, visit: http://www.poverty-action.org/financialcapability. 49 To learn more, visit: http://momentum-project.org/en/. 50 Alembakis, R. “AXA IM develops impact investing fund of funds”. The Sustainability Report, http://www.thesustainabilityreport.com.au/axa-im-develops-impact-investing-fund-of-funds/, 2014. 51 To learn more, visit: http://www.goldmansachs.com/our-thinking/impact-investing/touts/fact-sheet.pdf. 52 To learn more, visit: http://www.morganstanley.com/globalcitizen/investing-impact.html. 53 “UBS launches first fund for Impact Investing”. UBS, http://www.obviam.ch/med/175-press-release-ubs-iif.pdf, 2013. 54 To learn more, visit: http://www.forachangingworld.com/2014/01/social-entrepreneurs-bagore-bathily-and-la-laiterie-du-berger/. 55 To learn more, visit: https://www.credit-suisse.com/responsibility/en/initiatives/microfinance/triage.jsp. 56 Bandel, C. “Zurich Insurance to Double Investment in Green Bonds”. Bloomberg, http://www.bloomberg.com/news/2014-07-14/zurich-insurance-to-double-investment-in-green-bonds.html, 2014. 57 “Prudential Financial Commits to Build $1 Billion Impact Investment Portfolio by 2020”. The Wall Street Journal, http://www.prudential.com/media/managed/Prudential-AR2013.pdf, 2014. 58 “Prudential 2013 Annual Report”. Prudential, http://www.prudential.com/media/managed/Prudential-AR2013.pdf, 2014. 59 “Social Investment from Ambition to Action: Annual Review 2013”. Big Society Capital, http://www.bigsocietycapital.com/sites/default/files/BSC_AR_2013.pdf, 2013. 60 To learn more, visit: http://www.triodos.com/en/about-triodos-bank/what-we-do/ 61 To learn more, visit: http://benefitcorp.net/business/business-faqs 62 To learn more, visit: http://www.socialstockexchange.com/splash.html 63 To learn more, visit: http://www.impactbase.org/ 64 To learn more, visit: http://www.impactassets.org/ 65 Shah, S., Pease, M. “Diverse Perspectives, Shared Objectives: Collaborating to Form the African Agriculture Capital Fund”. GIIN, http://www.thegiin.org/cgi-bin/iowa/resources/research/424.html, 2012. 66 To learn more, visit: http://www.occ.gov/publications/publications-by-type/other-publications-reports/cdi-newsletter/august-2012/ healthy-foods-ezine-article-4-ncbci.html#loan. 67 Saltuk, Y., El Idrissi, A., Bouri, Amit., Mudalair, A., Schiff, Hannah. “Spotlight on the Market: The Impact Investor Survey”. J.P. Morgan and GIIN, http://www.thegiin.org/cgi-bin/iowa/resources/research/594.html, 2014. 68 “UBS launches first fund for Impact Investing”. UBS, http://www.obviam.ch/med/175-press-release-ubs-iif.pdf, 2013. 69 To learn more, visit: http://www.eq-cap.com/. 70 To learn more, visit: http://www.leapfroginvest.com/lf/about/investors. 71 To learn more, visit: http://bridgesventures.com/about-us/. 72 To learn more, visit: http://www.dblinvestors.com/. 73 To learn more, visit: http://www.finance-in-motion.com/. 74 To learn more, visit: http://www.microvestfund.com/aboutmv/index.html. 75 To learn more, visit: http://www.saronafund.com/aboutus.php. 76 “1st close of social impact fund at EUR 24.8m: Impact Ventures UK”. LGT Venture Philanthropy, http://www.lgtvp.com/NewsCollection/News/2013/First-close-of-social-impact-fund--Impact-Ventures.aspx?lang=en-US, 2013. 77 To learn more, visit: http://impactcapital.net/. 78 To learn more, visit: http://www.socialstockexchange.com/splash.html. 79 To learn more, visit: http://www.asiaiix.com/. 80 To learn more, visit: http://www.svx.ca/. 81 To learn more, visit: http://www.missionmarkets.com/. 82 “From Ideas to Practice, Pilots to Strategy: Practical Solutions and Actionable Insights on How to Do Impact Investing”. World Economic Forum, http://www3.weforum.org/docs/WEF_II_SolutionsInsights_ImpactInvesting_Report_2013.pdf, 2013. 83 “Bamboo Finance Successfully Exits from Xac Bank in a Sale led by ORIX Corporation”. Bamboo Finance, http://www.bamboofinance.com/ bamboo-finance-successfully-exits-from-xac-bank-in-a-sale-led-by-orix-corporation/, 2013. To learn more, visit: http://www.xacbank.mn/en/90. 84 Stein, T. “Do-Gooder LeapFrog Seeks Big Profits”. Buyouts, http://leapfroginvest.com/pdf/Buyouts.pdf, 2013. 85 To learn more, visit: http://www.leapfroginvest.com/lf/investment/portfolio-company-express-life. 86 “Bridges Ventures exits Whelan Refining – Third successful exit in nine months”. Bridges Ventures, http://bridgesventures.com/bridges-ventures-exits-whelan-refining-third-successful-exit-in-nine-months/, 2013. 87 “Micro insurance at Allianz Group: 2013 Full Year Report”. Allianz, https://www.allianz.com/en/products_solutions/sustainable_solutions/microinsurance.html, 2013.

Charting the Course 47 88 “Bradesco Sustainability Report 2012”. Bradesco, https://www.bradescori.com.br/site/conteudo/informacoes-financeiras/relatorios-sustentabilidade.aspx?secaoId=723&idiomaId=2, 2012. 89 To learn more, visit: http://www.equator-principles.com/. 90 “2013 Annual Impact Report”. Huntington Capital, http://www.huntingtoncapital.com/impact-reports/, 2013. 91 “Impact Investing 2.0, The Way Forward – Insight from 12 Outstanding Funds”. Pacific Community Ventures, http://www.pacificcommunityventures.org/impinv2/wp-content/uploads/2013/11/2013FullReport_sngpg.v8.pdf, 2013. 92 To learn more, visit: http://www8.gsb.columbia.edu/courses/emba/2013/spring/b7455-018. 93 To learn more, visit: http://www.cfa-sf.org/i4a/calendar/details.cfm?id=385. 94 To learn more, visit: www.sustainableinvestingchallenge.org. 95 “Impact-Based Incentive Structures: Aligning Fund Manager Compensation with Social and Environmental Performance”. GIIN, http://www.thegiin.org/binary-data/RESOURCE/download_file/000/000/332-1.pdf, 2011. 96 To learn more, visit: http://www.ubs.com/global/en/about_ubs/corporate_responsibility/ commitment_strategy/objectives_and_achievements/objectives-and-achievements-2013.html. 97 To learn more, visit: http://b-analytics.net/products. 98 “Intellecap launches critical industry tools at Sankalp Unconvention Summit 2014”. Intellecap, http://www.intellecap.com/publications/intellecap-launches-critical-industry-tools-sankalp-unconvention-summit-2014, 2014. 99 To learn more, visit: http://www.missionmarkets.com/. 100 To learn more, visit: http://www.verasolutions.org/. 101 To learn more, visit: http://www.maximpact.com/Portals/0/Documents/MAXIMPACT_AT_A_GLANCE.pdf. 102 To learn more, visit: http://www.thegiin.org/. 103 To learn more, visit: http://www.investorscircle.net/. 104 To learn more, visit: http://www.impactassets.org/. 105 To learn more, visit: http://www.saiin.co.za/. 106 To learn more, visit: http://www.impact-investing.eu/. 107 To learn more, visit: http://www.toniic.com/. 108 “Sustainable Investing: Integration of Environmental, Social, and Governance (ESG) Factors”. Calpers, http://www.calpers.ca.gov/eip-docs/about/video-web-center/videos/pension-investments/esg-worshop.pdf, 2011. 109 To learn more, visit: https://www.familyoffice.com/. 110 To learn more, visit: http://www.terrapinn.com/conference/americas-family-office-forum/index.stm. 111 To learn more, visit: http://www.opalgroup.net/conferencehtml/current/european_family_office_private_wealth/european_family_office_private_wealth.php. 112 To learn more, visit: http://www.enfo.net/en/network-profile.aspx. 113 To learn more, visit: http://www.familyofficemetrics.com/. 114 To learn more, visit: https://www.familyoffice.com/consulting. 115 “From Ideas to Practice, Pilots to Strategy (Second Edition): Practical Solutions and Actionable Insights on How to do Impact Investing”. World Economic Forum, http://reports.weforum.org/impact-investing-from-ideas-to-practice-pilots-to-strategy-ii, 2014. 116 “From Ideas to Practice, Pilots to Strategy (Second Edition): Practical Solutions and Actionable Insights on How to do Impact Investing”. World Economic Forum, http://reports.weforum.org/impact-investing-from-ideas-to-practice-pilots-to-strategy-ii, 2014. 117 To learn more, visit: http://www.goldmansachs.com/citizenship/10000women. 118 To learn more, visit: http://www.huginsure.com/. 119 “Impact Investing 2.0, The Way Forward – Insight from 12 Outstanding Funds”. Pacific Community Ventures, http://www.pacificcommunityventures.org/impinv2/four-common-practices/policy-symbiosis/, 2013. 120 “Building Alliances Series: Microfinance & Microenterprise”. USAID, http://www.usaid.gov/sites/default/files/documents/1880/Micro_Guide.pdf, 2009. 121 “Impact Investing 2.0, The Way Forward – Insight from 12 Outstanding Funds”. Pacific Community Ventures, http://www.pacificcommunityventures.org/impinv2/four-common-practices/policy-symbiosis/, 2013. 122 To learn more, visit: https://www.credit-suisse.com/responsibility/en/initiatives/microfinance/partners.jsp. 123 www.zurich.com/_/media/dbe/corporate/docs/corporate-responsibility/private-investor-capital-ngo-impact-june-2014pdf.pdf?la=en. 124 “From Ideas to Practice, Pilots to Strategy (Second Edition): Practical Solutions and Actionable Insights on How to do Impact Investing”. World Economic Forum, http://reports.weforum.org/impact-investing-from-ideas-to-practice-pilots-to-strategy-ii, 2014. 125 To learn more, visit: http://www8.gsb.columbia.edu/courses/emba/2013/spring/b7455-018. 126 “From Ideas to Practice, Pilots to Strategy (Second Edition): Practical Solutions and Actionable Insights on How to do Impact Investing”. World Economic Forum, http://reports.weforum.org/impact-investing-from-ideas-to-practice-pilots-to-strategy-ii, 2014. 127 “From Ideas to Practice, Pilots to Strategy (Second Edition): Practical Solutions and Actionable Insights on How to do Impact Investing”. World Economic Forum, http://reports.weforum.org/impact-investing-from-ideas-to-practice-pilots-to-strategy-ii, 2014. 128 To learn more, visit: http://whartonsocialventurefund.org/. 129 To learn more, visit: www.sustainableinvestingchallenge.org . 130 “2013 Report INSEAD Entrepreneurship Forum”. INSEAD, http://www.insead.edu/facultyresearch/centres/social_entrepreneurship/sec/documents/ WebReady_IEFConferenceReportFontainebleau-23May2013.pdf, 2013. 131 To learn more, visit: https://www.db.com/cr/en/concrete-strengthening-leadership.htm. 132 To learn more, visit: http://www.blackstoneentrepreneursnetwork.org/. 133 To learn more, visit: https://se100.net/about.

48 Charting the Course References and Further Reading

“Impact Investment: The Invisible Heart of Markets”. Social Impact Investment Taskforce established under the UK’s presidency of the G8, http://www.socialimpactinvestment.org, 2014.

Saltuk, Y., El Idrissi, A., Bouri, Amit., Mudalair, A., Schiff, Hannah. “Spotlight on the Market: The Impact Investor Survey”. J.P. Morgan and GIIN, http://www.thegiin.org/cgibin/iowa/resources/research/594.html, 2014.

Lai, J., Morgan, W., Newman, J., Pomares, R. “Evolution of an Impact Portfolio: From Implementation to Results”. Sonen Capital, KL Felicitas Foundation, http://www.sonencapital.com/evolution-of-impact.php, 2013.

“IRIS Data Brief: Focus on Beneficiaries”. Global Impact Investing Network (GIIN), http://www.thegiin.org/binary-data/IRISData_Brief_Beneficiaries_2014.pdf, 2014.

“Social & Environmental Due Diligence: From Impact Case to the Business Case”. Root Capital, http://info.rootcapital.org/social-and-environmental-due-diligence, 2014.

“2012 Report on Sustainable and Responsible Investing Trends in the United States”. US SIF Foundation, http://www.ussif.org/content.asp?contentid=82, 2012.

“European SRI Study 2012”. Eurosif, http://www.eurosif.org/publication/european-sri-study-2012/, 2012.

“Big demands and high expectations: The Deloitte Millennial Survey”. Deloitte, http://www2.deloitte.com/global/en/pages/about-deloitte/articles/2014-millennial-survey-positive-impact.html, 2014.

“2012 Global Sustainable Investment Review”. Global Sustainable Investment Alliance, http://gsiareview2012.gsi-alliance.org/pubData/source/Global%20Sustainable%20Investement%20Alliance.pdf, 2012.

“Impact Investing 2.0, The Way Forward – Insight from 12 Outstanding Funds”. Pacific Community Ventures, http://www.pacificcommunityventures.org/impinv2/wp-content/uploads/2013/11/2013FullReport_sngpg.v8.pdf, 2013.

“We need a bigger boat: Sustainability in investment”. Towers Watson, http://www.towerswatson.com/en/Insights/IC-Types/ Survey-Research-Results/2012/09/Sustainable-investing-we-need-a-bigger-boat, 2012.

“Business Trends 2014: Navigating the next wave of globalization”. Deloitte University Press, http://www2.deloitte.com/global/en/pages/strategy/articles/business-trends-2014.html, 2014.

“Shifting the Lens: A De-risking Tookit for Impact Investment”. Bridges Ventures, Bank of America Merrill Lynch, http://www.socialfinanceus.org/pubs/shifting-lens-de-risking-toolkit-impact-investment, 2014.

Buckland, L. “Social Impact Strategies for Banks – Venture Philanthropy and Social Investment”. European Venture Philanthropy Association (EVPA), http://www.evpa.eu.com/knowledge-centre/publications/evpa-publications/, 2014.

“The Social Investment Consultancy & London Economics”. City of London Corporation, Social Investment Research Council, http://www.cityoflondon.gov.uk/business/economic-research-and-information/research-publications/Pages/ New-specialist-sources-of-capital-for-the-social-investment-market.aspx, 2014.

Charting the Course 49 Acknowledgements

The World Economic Forum’s Mainstreaming Impact Investing initiative is supported by Deloitte Touche Tohmatsu Limited.

Project Team Michael Drexler Senior Director, Head of Investors Industries Abigail Noble Associate Director, Head of Impact Investing Initiatives Erik Classon Project Manager Eric Mercep Project Manager

Steering Committee (in alphabetical order) Sergio P. Ermotti Group Chief Executive Officer, UBS AG James P. Gorman Chairman and Chief Executive Officer, Morgan Stanley Andrew E. Law Chairman and Chief Executive Officer, Caxton Associates Torben Möger Pedersen Chief Executive Officer, PensionDanmark Cecilia Reyes Chief Investment Officer, Zurich Insurance Group Peter Sands Group Chief Executive, Standard Chartered

This report synthesizes the ideas and contributions of many individuals to whom the project team is thankful for generously contributing their time, energy and insights. In particular, the team would like to offer our gratitude to those who participated in workshops, interviews and project conversations (in alphabetical order):

Shuhei Abe SPARX Group Co. Ltd Japan Fazle Hasan Abed BRAC Rosemary Addis IIPC Kate Ahern Case Foundation Jonas Ahlen Storebrand Asset Management Sweden Matti Aistrich Sitra Cédric Alber Department of Security, Police and the Economy of Geneva Sultan Ali Allana Habib Bank Ltd Johan H. Andresen Jr. Ferd Nicholas Ashburn Wharton Camilla Backstrom Council of Nordic Ministers on Social Investment Jason Bade Stanford University Pasha Bakhtiar ES Bankers Ltd Matthew J. Bannick Omidyar Network Clara Barby Bridges Ventures Tanya Beja IGNIA Partners, LLC Amy Bell JPMorgan Social Finance Vivina Berla Sarona Asset Management Mette Fossum Beyer REMA 1000 Giovanni Bossi Banca IFIS SpA Amit Bouri Global Impact Investing Network Kieron Boyle UK Cabinet Office Richard Brass Berenberg Bank Alejandro Brenes Enertiva Maurice Brenninkmeijer COFRA Holding AG Tim Bubnack Huntington Capital Antony Bugg-Levine Nonprofit Finance Fund James Bui Lotus Impact John Buley CASE i3 at Duke Matt Camp ICIC Mark Campanale Social Stock Exchange Bill Campbell Equilibrium Capital Phoebe Campbell Campbell Associates LLC Jean Case Case Foundation

50 Charting the Course Alessandro Castellano Sace SpA Maria Cavalcanti First Impact Brazil Veronica Chau Dalberg Global Development Advisors David Chen Equilibrium Capital Melissa Cheong Imprint Capital Advisors Michael Chodos US National Advisory Board on Impact Investment and Georgetown Univ. Global Social Enterprise Initiative Audrey Choi Morgan Stanley Moses Choi Morgan Stanley Maya Chorengel Elevar Equity Yulanda Chung Standard Chartered Cathy Clark Duke University Andrew Cohen Goldman Sachs Sir Ronald Cohen Big Society Capital Stephanie Cohn Rupp Toniic Neill Coleman The Rockefeller Foundation Justin Conway Calvert Foundation Ron Cordes Genworth Financial Wealth Management, Cordes Foundation Elizabeth Coston Kellogg School of Management, Northwestern University Gil Crawford MicroVest Chris Davidson Permira Deirdre Davies Deutsche Bank Chris Davison Permira Jean-Philippe de Schrevel Bamboo Finance Christopher Delong Taconic Capital Advisors LP Pooran Desai BioRegional Development Group Sasha Dichter Acumen Fund Paul DiLeo Grassroots Capital Management Michelle Edkins BlackRock Ali El Idrissi J.P. Morgan Amr El Salanekly Vodafone Ventures Patrick Elmer Credit Suisse Dirk Elsen Triodos Investment Management Jed Emerson ImpactAssets Andreas Ernst UBS Augie K. Fabela VimpelCom Ltd Andreas Feiner Arabesque Marco Fiorese The Monaco-Asia Society Richard Folsom Advantage Partners LLP Mary Galeti The Tecovas Foundation Katherine Garrett-Cox Alliance Trust Plc Saundra Gibson Credit Suisse Michele Giddens Bridges Ventures Paula Goldman Omidyar Network John Goldstein Imprint Capital Henry Gonzalez responsAbility Investments Josh Gotbaum Pension Benefit Guaranty Corporation Yoriko Goto Deloitte Japan Ulrich Grabenwarter European Investment Fund Jacob Gray Wharton Jon Grayson Social Stock Exchange Jonathan Greenblatt White House, Office of Social Innovation and Civic Participation Michelle Greene NYSE Bill Gross Idealab Allen Grossman Harvard Business School Jacob Haar Minlam Asset Management Wolfgang Hafenmayer LGTVP Lisa Hall Anthos Hisham Hamdan Khazanah Nasional Berhad Mark Hanis Georgetown University

Charting the Course 51 Paul Hanratty Old Mutual Karim Harji Purpose Capital Christopher Harvey Deloitte Touche Tohmatsu Limited Jeremy Heimans Purpose Laura Hemrika Credit Suisse Paul Herman HIP Investor H. Robert Horvitz MIT - Department of Biology Jane Hughes Social Finance Harry Hummels SNS Bim Hundal Lion’s Head Global Partners Jane Hunt Fitted for Work Johannes Huth Kohlberg Kravis Roberts & Co. L.P. Paulus Ingram APG Asset Management Jessica Jackley Collaborative Fund Lars Jannick Johansen Social Kapital Fond Stine Jersie Olsen Bestseller Foundation Peter Johnson Developing World Markets Toni Johnson FB Heron Fred Kaiser Alpha Technologies Inc. Tihomir D. Kamenov Commercial League Healthcare Group Zachary Karabell River Twice Capital Advisors Oliver Karius LGT Venture Philanthropy Cesar J. Kastoun Olayan Group Julie Katzman Inter-American Development Bank Randall Kempner Aspen Network of Development Entrepreneurs Neal Keny-Guyer Mercy Corps Runa Khan Friendship Bangladesh Zia Khan The Rockefeller Foundation Walter B. Kielholz Swiss Reinsurance Company Ltd Mads Kjaer MYC4 A/S Charly Kleissner KL Felicitas Foundation Lisa Kleissner KL Felicitas Foundation Andrzej Klesyk PZU SA Wouter Koelewijn PGGM Pavel Koktyshev Young Entrepreneurs Club of Kazakhstan Lauren Koopman PricewaterhouseCoopers LLP Andy Kuper LeapFrog Investments Choi Kwang National Pension Service South Korea Don Lam VinaCapital Sergio Lazzarini INSPER Dutch Leonard Harvard Business School Shawn Lesser Watershed Capital Manuel Lewin Zurich Insurance Group Elizabeth Littlefield Overseas Private Investment Corporation Christine Looney Ford Foundation Agustín Coppel Luken Coppel SA de CV Susanne Lund Pension Danmark Mohamad Ziad Mabsout Fortium Consulting David Marchick The Carlyle Group Mario Marconi UBS Wealth Management Harvey McGrath Big Society Capital Naveen Menon A.T. Kearney Pte Ltd Craig Metrick Mercer Richard Joseph Migliori UnitedHealth Group Inc. Brian Milder Root Capital Daniel Mintz Olympus Capital Holdings Vineet Mittal Welspun Energy Ltd. Anders Mjaset MESH Arild Molstad Partners for Change

52 Charting the Course Ashby Monk Stanford University Global Projects Center Margaret Moore Goldman Sachs Sam Muller Hague Institute for the Internationalisation of Law Carl F. Munana Inter-American Investment Corporation Gloria Nelund TriLinc Global Jenna Nicholas Calvert Foundation Oliver Niedermaier Tau Investment Management Jacqueline Novogratz Acumen Fund Amy O’Brien TIAA CREF Nicholas O’Donohoe Big Society Capital Uche Orji Nigerian Sovereign Wealth Fund Jill Otto J.P. Morgan Tracy Palandjian Social Finance US Matthew Patsky Trillium Asset Management Andrea Phillips Goldman Sachs Jan Piercy ShoreBank International Ed Powers Bank of America Liesel Pritzker Simmons Blue Haven Initiative Jennifer Pryce Calvert Foundation Tim Radjy AlphaMundi Luther Ragin Jr. GIIN Pradeep Ramamurthy Abraaj Kash Rangan Harvard University Jamie Rantanen Deutsche Bank Bruno E. Raschle Adveq Holding AG Joanna Reynolds MaRS Sue Riddlestone BioRegional Development Group Neil Rimer Index Ventures Diana Robinson Social Stock Exchange Judith Rodin The Rockefeller Foundation Kasper Rorsted Henkel AG & Co. KGaA David G. Rosenberg AeroFarms Tone Rosingholm J.P. Morgan Jim Roth LeapFrog Investments Tom Rotherham Hermes Angelica Rotondaro University of St. Gallen Linda Rottenberg Endeavor Javier Saade U.S. Small Business Administration Daniel Sachs Proventus AB Yasemin Saltuk J.P. Morgan Social Finance Ommeed Sathe Prudential Patrick Schena Tufts Fletcher Buzz Schmidt FB Heron Beth Schmidt Wishbone Debra Schwartz MacArthur Foundation Fran Seegull Impact Assets George Serafeim Harvard Business School Sonal Shah Case Foundation Wayne Silby Calvert Ian Simmons Blue Haven Initiative Rina Onur Sirinoglu Peak Games Roy Sosa MPOWER Ventures LP David Spreng Crescendo Ventures Keely Stevenson Bamboo Finance USA Eytan Stibbe Vital Capital Mitchell Strauss Overseas Private Investment Corporation Yoon Suk-Mynn SBS Media Holdings Co. Ltd Kristen Sullivan Deloitte Julie Sunderland Bill & Melinda Gates Foundation

Charting the Course 53 Julia Sze Sonen Capital Brian Taylor Pine River Capital Management Colin Teicholtz Pine River Capital Management Paul Thanos International Trade Administration (US Department of Commerce) Rebecca Thomas The Portland Trust Ben Thornley Pacific Community Ventures Klaus Tischhauser responsAbility Social Investments AG Satoshi Tomii Development Bank of Japan Inc. Brian Trelstad Bridges Ventures Karen I. Tse International Bridges to Justice Hans Wahl INSEAD Jane Wales Aspen Institute Darren Walker Ford Foundation Joche Wermuth Wermuth Asset Management GmbH Theresa Whitmarsh Washington State Investment Board Gavin Wilson International Finance Corporation Karen Wilson OECD Adam Wolfensohn Wolfensohn Fund Management, L.P. Ling Wong Global Health Office of the President Arthur Wood Total Impact Advisors David Wood Harvard University Tan Yinglan INSEAD Cao Yu China Investment Corporation Jeromin Zettelmeyer European Bank for Reconstruction and Development Rhonda I. Zygocki Chevron Corporation

World Economic Forum

Klaus Schwab, Founder and Chairman, World Economic Forum Hilde Schwab, Founder and Chairperson, Schwab Foundation for Social Entrepreneurship Jean-Pierre Rosso, Chairman, World Economic Forum USA

Special thanks to the Investors Industries team for their support throughout the project: Karen Au Yeung, Katherine Bleich, Amy Chang, John Cunningham, Michael Drexler, Maha Eltobgy, Peter Gratzke, Alice Heathcote, Michael Karimian, Tik Keung, Marina Leytes, Henry McLoughlin, Irwin Mendelssohn, Abigail Noble, Megan ONeill, Jason Rico Saavedra, Dena Stivella,

With additional thanks to our collaborators in the production of this report: Ann Brady, David Bustamante, Robert Gale, Ruslan Gaynutdinov, Lucy Jay-Kennedy, Kamal Kimaoui, Floris Landi, Alem Tedeneke, Village Print & Media

Deloitte Touche Tohmatsu

Chris Harvey, Global Leader for the Financial Services Industry group

Special thanks to the Deloitte advisers: Erik Classon, Carolien De Bruin, Joel Bryce, Peter Firth, Eric Mercep, Ashima Sukhdev, Kristen Sullivan and Gauthier Vincent

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